For home buyers and investors, the global economic recession and the housing slump present an array of opportunities for those who can identify good bargains. At the heart of the housing decline has been a number of bad home loans, which has resulted in more and more foreclosed properties coming onto the market.
Banks now own tens of thousands of homes across the country and they are eager to sell the homes as quickly as possible. This doesn’t mean that banks are “giving homes away,” but it should be stressed that banks are not in the home-owning business; they are lending institutions that make their money on home mortgages.
According to RealtyTrac, an online marketplace for foreclosed properties, the overall foreclosure activity continues to register at a high level compared to 2008. When home owners can’t pay their mortgage and get foreclosed on, the bank’s first move is to sell the property at an auction. When the house doesn’t sell at auction, the property reverts back to bank ownership, becoming what’s known as a Real Estate Owned (REO) property.
These REO properties are very enticing for investors and home buyers because they are often listed slightly below the market value. While REO properties have proved popular for their value, some have been purchasing these bank-owned homes without having a home inspector look at the property.
“REO properties are sold in ‘as-is’ condition – the condition the house was in when it was repossessed. Any savings on the purchase price can easily be offset by unforeseen repairs on defects not apparent to an untrained eye.“In the worst cases, repair costs can escalate to the point where a buyer will fail to recover a return on their investment.”
When banks become owners of a property, they don’t do repairs the way a typical investor would. They will send a team to the property to shut off the electricity and disconnect the toilets, but they have no interest in maintaining or repairing the property. Potential home buyers should understand that the property may have a number of defects, and only a home inspector will have the expertise to determine what’s not functioning correctly in the house.
The home buying process can require “a lot of money and accurate information regarding the condition of its systems and components is required to make a smart decision.” She urges buyers to consider the benefits of a home inspection: “For a couple hundred dollars, an inspection can either save you thousands on unforeseen repairs, or give you peace of mind. Either one is invaluable.”
While banks typically will not lower their asking price based on home defects (as an average homeowner might), the discovery of defects allows a potential home buyer to “walk away” from the property.
While it’s normal for buyers to become emotionally invested in an REO property that fits their needs and is offered at a good price, one must have the sense to walk away from a property that will require too much repair work. The only way to arm one’s self is with a professional home inspector.