6 Pitfalls the Foreclosure Buyer Faces and How You Can Avoid Them

For many people the home they purchase will serve as their largest investment. And at the time of this writing, when it comes to homes for sale, the Foreclosure is king. Foreclosure properties are often identical to neighboring properties, only foreclosures tend to be $10-20,000 cheaper. As with all home purchases, buying a foreclosure will come with some costs. Unfortunately for the unprepared buyer, these costs can be much higher than they need to be. Its common for the unprepared buyer to fall victim to at least one of these common and very costly mistakes:

Overspending on the home they want, or

Handing their dream home over to a more prepared buyer or,

(worse yet) buying a home that saves them money, but doesn’t meet their needs.

Fortunately with a little thought and preparation you’ll be able to steer clear of these common pitfalls, cut costs, and secure a home that meets your needs. There are 6 very common and costly home buyer pitfalls and I’m going to show you how to avoid them. The six foreclosure buyer pitfalls are:

1. Bidding Blind. How much should you offer the seller for their home? To answer this question you’ll need to first determine if the asking price is too high or if it’s already a great deal. Even in the toughest markets underpriced homes will see multiple offers. But you also don’t want to over pay either, so you must do some research. Certain websites or an experienced Realtor can provide you with a list of recent area home sales. The key is to know what homes are selling for. Try to avoid using active listings as comparables. There is an epidemic of people listing homes for sale that they actually don’t have the authority to sell at that price. These homes have a 1 in 4 chance of closing and because of this they are priced unrealistically low. By studying recent home sales, you can get a more realistic number.

2. Buying the Wrong Home. What are you looking for in your new home? This is an easy question that can create a complicated set of answers. More homeowners than you might think have purchased a home that isn’t the best fit for their needs. Some people see the granite counter-tops and stainless steel appliances that they’ve always wanted and sometimes overlook their more basic needs. Take a minute to create a list of your needs and wants and keep this by your side as you search for your home. This list will serve as your yardstick; use it to measure each and every home.

3. Unclear Title. Nobody likes last minute surprises. Especially when those surprises can cost you your dream home. Perform a title search early on in the transaction to be sure your home is free from undisclosed owners, leases, easements, or tax liens. In many areas Sellers will pay for all of some of this expense, but this is usually not the case with foreclosures so plan accordingly.

4. Not Getting Mortgage Preapproval. Getting preapproval is fast, easy and free. This is more important than ever in today’s housing market. If you’ve begun your search already then you know that Bank Owned Properties, and Government Foreclosure are the best deals available right now. These types of Sellers require a preapproval letter to even consider your offer. They all do. And don’t kid yourself. Everybody is looking at the same list of homes that you are. They too will know that this foreclosure is just like the other homes on the block, only $20K cheaper. If the other buyers are preapproved and you’re not, they get the house and you don’t; it’s that simple.

5. Contract Misses. The Government and Banks are overloaded with foreclosures right now. One of the things they do to help lighten their load is to kick back any offers containing errors. Miss and initial, or forget to sign in blue ink, and a deal could be lost. To help you navigate this difficult and often tedious process, I suggest hiring a Realtor with foreclosure experience. And since most Buyers Agents will charge you nothing for this service, there really is no reason not to. Even with the help of an experienced agent, its still a good idea to check your purchase agreement for missing initials, or incomplete fields. Remember that multiple offers are common with foreclosures, and an error in a contract can lead to the sellers selecting another offer.

6. Undisclosed Fix-ups. These are possible in all types of home purchases, but are more common with foreclosures. Foreclosures are not occupied by their owners. These sellers probably won’t know if any work has done, or if it was done with a permit. Some types of updating and remodeling must be done with a permit and then inspected by the city or county where the home is located. If this doesn’t happen, the city or county could force you to have this work redone with a permit and then inspected. Foreclosure are mostly sold as-is, so this work would need to be done at your expense. Your often not allowed to inhabit the home until all repairs are done and inspected. This situation can be avoided entirely if you just have the home properly inspected. If the inspector can see that work has been done, check with the county to see if a permit was recorded. Not all work requires a permit, so consult with your home inspector as needed.

To assure a smooth transaction, take a minute upfront and do a little preparation. Create a list of needs and wants then research recent home sales. Talk to a lender and get pre-approved. Triple check your purchase agreement for errors, have a title search conducted, and always do a home inspection. Foreclosures are a little bit more work, but can save you tens of thousands of dollars. A Realtor experienced in the Foreclosure process can help simplify the process and minimize your risks.

Nick Bert is the President and CEO of Washington Realty Source, and he specializes in helping First Time Buyers and Investors quickly and easily locate the best deals on Snohomish County Foreclosures. You wont want to miss the Edmonds Foreclosures List which features unheard of deals on some of the hottest properties in Edmonds, WA.