Many first-time home buyers and investors whom I encounter typically ask about foreclosures and handyman-specials. Essentially they are looking to buy a real estate bargain. When is the best time to by a real estate bargain?
A foreclosure is a home that has been repossessed by the holder of the mortgage note, usually a bank. The process of foreclosure varies depending in which state the foreclosed home exists and what type of mortgage document exists on the home. To make a long story short, the home is either auctioned to the highest bidder, or the home is taken over by the bank to be sold on the market. The foreclosed homes that are put on the market are also called REO, which stands for real estate owned by bank.
Foreclosed homes can also be bought at auction. Auctions are usually conducted at the courthouse by a local auctioneer. These types of auctions are also known as a trustee’s sale or substitute trustee’s sale. If you are interested in attending an auction, you can find the advertisements for the auctions in the local papers’ classified section. To bid on the home, you must have the minimum deposit in the form of certified funds. The minimum deposit is usually posted in the advertisement. If you are buying a foreclosed home at auction, you are essentially buying it “as-is” without the ability to do a home inspection prior to close.
When the bank has taken title to a foreclosed home, a Realtor is usually hired to list the home on the Multiple List Service (MLS). In this scenario, you have an opportunity to view the home before you decide to submit your offer. The home is generally sold “as-is.” Hopefully, you will have a Realtor of your own to advise you of the value and general condition of the home.
Generally, the process of buying a foreclosed property can be bumpy due to foreclosure process. Sometimes the previous owner will damage the home (sometimes on purpose), or take valuable materials out of the home such as copper or other fixtures. Additionally, the home is locked up for months, often without utilities. Mold growth is typical due to water penetration, and/or other structural and environmental concerns.
A handyman special is a term that is often used when a home is sold by the owner. The home can have deferred maintenance or other damage. The home could be a rental property in need of “TLC.” Many times, a handyman special will require mostly a great deal of cosmetic work, such as painting, carpet, etc. Sometimes, there are some structural concerns, such as (but not limited to) replacing a roof, or fixing walls.
Overall, when considering a real estate bargain whether you will have to determine if the home is worth the price you want to pay. In addition to the acquisition cost, you will have to consider the total cost to repair the home, as well as the costs to make updates. It is also important to look at the recent neighborhood comparables to see if the price or adjusted price (price plus costs for repairs) is in line.
If the market is depressed or a buyers’ market, there may be some choices in a real estate bargain. However, if the market favors the seller, there are fewer bargains. In a sellers’ market, distressed properties can sell for close to market value.
by Dan Krell © 2005