Investing In Someone Else's Mistake

Buying a Foreclosure!

As a potential buyer, you can attend a foreclosure auction and bid on a property. The chance you take to great a great deal is that most of the time you have never seen the inside of the property, have no opportunity to do an inspection, and you must provide cash in full for the amount at the time of the winning bid.

Since most foreclosures end up being owned by the bank or the lender, you can find foreclosed homes in the same listings as other properties for sale. The lender, who now owns the house, will hire a real estate agent to sell the property. Foreclosures are advertised on the multiple listing service that all real estate agents use.

When buying a foreclosure, you will inevitably get the house for a substantially reduced price than it last sold for. However, you must really know what to look for when inspecting the house or hire professionals to do an inspection for you to see exactly what is wrong with the place. The house will be sold "as-is." This means that the owner (bank or lender) will not fix anything that you find wrong with the house. This does not mean that you can't ask for an inspection period in your contract to purchase. An inspection clause is a must! If you find out that too much is wrong with the house for your taste and ability to make your own improvements then you can back out of the contract and not be forced to buy the house, you will also get your deposit back. If you find things that are wrong and you know how much it would cost you to make the improvements then you can continue to negotiate asking for a reduction in price.

Inspections are so crucial because in almost all foreclosures there are huge problems that could cost you so much money that the low bargain price for the house is not even worth it! The biggest obstacle with doing an inspection of a foreclosed house is the utilities. Most likely the electric, gas, or water will not be turned on. It may take some time to get these utilities turned on so that you can see if they actually work because most prior owners not only did not pay their mortgage payments but also did not pay their utilities. Utility companies are becoming more and more reluctant to turn on the services until you show proof that you own the house. Well this doesn't help you when you need to see what works so you can decide whether you want to own the house!

Without gas or electric you will not be able to tell whether the furnace or hot water heater work, two big expenses if they need replacing. Without the water turned on you will not be able to tell if the plumbing works, another huge expense if your pipes are broken.

Most houses, especially those that are vacant during the winter months, have been winterized (prevents the water from freezing in the pipes and the pipes from breaking due to ice during cold temperatures since no one will be paying for heat to run in a vacant house). You need to get the house dewinterized and the water running before you agree to buy it to see if you have plumbing problems! Even though a house has been winterized it may not have been done correctly. It could have been winterized too late and the pipes could have already broken. A plumber needs to come to the house and dewinterize by turning the water back on and checking for leaks.

Some purchase contracts will require the buyer to put the utilities in your own name to get them on, and will require you to pay for the dewinterization (about $150). It is worth the money if you find out there is a problem you would not have known about otherwise.

Just remember, there is always room to negotiate when buying a foreclosure so only offer what you really want to pay and what you think the house is worth. I have seen houses drop in price by $10,000 several times waiting for someone to buy them. If a house is priced super low it is because there are problems. Even if you look at a home and it doesn't seem that bad, but it's priced very low, something is wrong with it. You really get what you pay for so check out everything. Knowledge of every repair and cost is extremely important.

Check out http://www.moveinmichigan.com/ for property listings very similar to what a real estate agent can find for you!

In following posts I will discuss what to look for in a foreclosure, how much certain repairs can cost, and what to run from when you see it!