Why have a Home Inspection when Buying a Foreclosed Property?
Prospective home buyers are entering a brave new world in today’s real estate market. While it is definitely a buyer’s market, and extraordinary values are to be found, there may be pitfalls to be avoided.
Perhaps the greatest opportunities are with foreclosed properties. Since banks are not interested in keeping foreclosed properties on their books, many great buying opportunities are available to intrepid buyers. While many of these properties are in serious disrepair, some may be gems in the rough with only cosmetic issues that can be dealt with at a minimum expense. Others may actually be overpriced when all necessary repairs are considered. Determining what category a foreclosure falls into is vital to avoiding a “money pit”.
While most real estate professionals and the buying public have come to regard the home inspection as a valued part of successful real estate transactions, having an inspection done a on a foreclosed property is sometimes seen as an unnecessary expense. Since foreclosures are usually listed “as is”, the idea that a home inspection can be important is often discounted. This can be a serious mistake for buyers when issues that could have been identified and dealt with by having a home inspection done become huge expenses and ultimately dissipate any value that was achieved by purchasing the home at below market pricing.
Many buyers are intimidated by the complexity of work involved in buying a home and take “as is” at face value. They fail to pursue their legitimate right to acquire all relevant information about the purchase they are making. Sometimes they conclude that any defects found during a home inspection are theirs to deal with because “as is” means “non-negotiable”.
While banks can be intimidating, the term “as is” should be seen as an initial starting position in the negotiation, rather than something set in stone. Banks are interested in making money and they will only make concessions when they are forced to do so. Since accurate information is important in any negotiation, a home inspection report can be a valuable asset in dealing with banks.
Banks are under pressure to move foreclosed properties, so it is in their interest to make deals whenever possible. They also may have a pool of money set aside for making repairs necessary to sell their properties. They try to reserve these pools for repairs necessary to avoid liability exposure that might result from selling a property that is not safe to live in. But they will also use this pool of money when necessary to complete a deal that would otherwise not be completed.
A good example of this was highlighted in a recent home inspection I conducted on a foreclosed property. The buyer had the inspection done at the insistence of her father. The inspection turned up several issues that affected the well-being of the property. The furnace was defective and in need of replacement. Serious electrical issues were detected that constituted a safety hazard. The roof was near the end of its life expectancy, even though it appeared O.K. when viewed from the ground. Several thousand dollars of repairs were in order. Even though the property was listed “as is”, my client presented the inspection report to the bank and asked for a 5k reduction in price. The bank responded that it could not reduce the price, but they could authorize up to 6k for repairs to the property. My client accepted the deal after the bank agreed to complete the necessary repairs before turning over possession. As a result, she obtained an excellent return on her investment in the home inspection and was glad she listened to her father.
In any case, it is always a good idea to get a home inspection done for any home purchase. Most buyers have a lot going through their mind as they prepare to make a purchase decision, making it difficult at times to evaluate all aspects of the house they are buying. They are often preoccupied with financing, comparing other properties, and thoughts about how their family and furnishings will adapt to the home. They may not notice that the furnace is old and in need of replacement or that the roof is nearing the end of its useful life and will require replacement within a year or two.
The one thing that a good home inspection can provide is clear, accurate documentation of all significant aspects of any property. The report can be a great negotiation tool for buyers to obtain the best deal they can on any home purchase including foreclosures.
Tim HoffmanOwner, Homespec LLC Inc.
Home inspection Service
thoffman@homespectoledo.com
419-297-0999
