I often get requests from clients to help find distressed sale properties. I can set up a very specific type of auto search in the MLS that will email foreclosure and judicial sales to subscribers as soon as they come on the market. The belief surrounding these types of purchases is that they are a great deal on a home or a good opportunity to find a house that can be fixed up to resell for a profit. Both scenarios are possible when buying foreclosure properties, but it is also important to understand the risks. Not all foreclosures are great deals. Here are 3 concerns that should not be overlooked. This is, by no means, an exhaustive list, but these are 3 important concerns you need to note. Do not let this discourage you, but it is important to be aware of the potential problems you may encounter when buying distressed property. Make an informed decision about what you are buying and what you willing to spend to secure a property.
1. Maintenance and condition
The reasons properties are in distressed sales, like a foreclosure or judicial sales, can vary. Typically, in a foreclosure, the owner could not make their payments There is a very good chance the previous owner did not keep up the maintenance on the property nor did they have the funds to repair serious issues that may have come up, like a leaky roof, broken windows, furnace repair, leaky plumbing or problems with the exterior envelope of the house. There may also be a chance that the property has been cleaned out of appliances, plumbing fixtures and even kitchen cabinets by the previous owner. Often, foreclosure homes can sit vacant and can get infested with mice or other vermin. They can be full of junk left behind by the previous owner. I have seen foreclosure sales where the basement is stacked to the ceiling with household garbage and junk left behind. Buying a home that is in serious need of repair or upgrade could be costly and this might mitigate any savings you may have realized on the purchase.
2. Competition with offers
When you make an offer, it is possible that a date will be set for offers to be presented to the bank or to the court. Not all sales are managed this way, but it is in the bank’s and court’s best interest to encourage multiple offers leading up to a specified date. The seller’s expectation is to get the highest price possible for their property. You could have the highest price right up to the last minute before the deadline to close offers and someone swoops in with a higher offer to get the property for a slightly higher price. Normally, there is competition for good quality, good condition, distressed sale properties so anticipate that your offer will be outbid and make your best educated offer based on your knowledge of the property and what you are willing to spend to secure the property based on the condition.
3. Finding Financing
Many banks will not lend on distressed property and you may be looking at higher interest rates and mortgages that are less flexible than those available from the major banks. Again, the extra you are paying to finance such a purchase is going to mitigate some of the savings from the lower purchase price. The lender will only consider the appraised value when lending, so if the property is not in good condition, the money available to purchase may be limited.
As previously mentioned, this is not an exhaustive list, but these are some of the more important considerations when buying distressed sale homes. If you would like advice relating to a specific property, please do not hesitate to contact me directly and request a free evaluation.
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Jim Perks is a REALTOR in Calgary, Alberta, Canada. He uses his expertise in Internet marketing and real estate experience to service both his buyers and sellers throughout the city of Calgary. He can be reached at RE/MAX Real Estate (Mountain View) 403-247-5178 or by email at firstname.lastname@example.org. His website is www.calgaryrealestateagent.
Jim Perks is a Calgary REALTOR who divides his time working with both sellers of houses and buyers of homes. He has been an agent since 2010