Purchasing any home is a big decision. If you want to love your home and purchase it at the best possible price, consider buying a foreclosed home. Whether you want to flip a foreclosure for a rental property or you want to buy a discounted home you can personalize, foreclosed homes can be a deal. Before you purchase a foreclosure, review our checklist of the top six things to know before signing a contract.
Hire a realtor who specializes in foreclosures
Think of your realtor as a potential new employee. They’re working for you. Find a realtor who specializes in foreclosures and then interview them. Ask how many foreclosures they’ve sold and the outcomes of each. How did the bank respond to their offers, and was it willing to work with them? What are some challenges and successes they’ve faced in recent sells?
Realtors know the ins and outs of this industry. They’ll be able to tell you details like the closing cost for a loan, the down payment percentage and whether you have to pay in cash. They’ll also tell you that the seller has to keep the home in its current, present condition after signing a contract.
Get a free property profile
Once you and your realtor have found a potential foreclosure, request a copy of the property profile for the home. Property profiles include all pertinent information for the property: Legal description, lot size, parcel number, owners of record, current taxes and more.
The home’s property profile will give you a better feel for its history way beyond what just the street address can tell you. Monarch Title Company offers Missourians free property profiles to help you make the most informed decision for your foreclosure purchase.
Check out the neighborhood
You should drive to the neighborhood, park and people watch. Watch the traffic on the street in the mornings, evenings and on the weekends as well. Show up and park when the area is at its busiest to get a feel for the life that happens there.
Look for context-clues. If you’re a young family with children wanting to move to an area with similar families, look for small bikes in the front yard or neon signs indicating children are at play. If you’re a retired homebuyer wanting a quiet locale, look for an area without multiple parks.
Get a crew together, beforehand (mention inspection)
Aside from your realtor who specializes in foreclosures, hire a contractor and home inspector. Ask around for referrals from your friends and family. Go to their offices and check out their quality of work. While the home is still in escrow, walk the property together. Consult with them what you might want added to or changed about the home. Get bids on what it’s going to take to get the property up to code. Ask about the contractor’s availability along the timeline you’ve set for the project.
Hire a general home inspector to review the home and roof. Because a home inspector is a generic jack-of-all trades, they will be able to notify you if, for example, the property’s pool needs further inspection and can suggest someone.
Search prices of comparable homes
Before purchasing your foreclosure, research listing prices for other homes in the same neighborhood. Surrounding homes will set the value for what your foreclosure is worth versus it’s current, discounted price. Take a walk through these homes to get a feel for features you might want in your foreclosure or extras you can install–this will help you determine your renovation budget, if necessary.
Searching comparable homes will also give you a better idea whether the foreclosure is a good investment for resell. It’s counterintuitive to purchase a home, even if its discounted thousands of dollars, and spend a generous amount on renovations if you can’t sell it for a profit.
Plan for the disrepair of vacancy
Homes are meant to be lived in, and when they’re not, they naturally fall into a state of disrepair over time. Because more foreclosures are sold as-is, it’s important to know how long the property sat vacant and budget accordingly. Shredded carpet, missing appliances and cabinetry, broken windows and chipped paint are common in distressed foreclosures and should be budgeted for accordingly. Look out for insect infestations like termite mud tubes; these can cost thousands of dollars to eradicate.
Don’t only think to budget for what’s visually awry. Consider what you can’t always see from within the home: Overgrown trees and brush roots can uproot and crack the home’s foundation. Toilet tanks rot. Rubber shower drain washers dry out and crack. Roofs get weathered. Water pipes can winterize and burst from freezing temperatures. Not every fix will be an expensive one, but it can be a headache.