Don’t Get Eaten Alive When Buying Foreclosures!
Know what you are getting in to when you invest in foreclosures! Being aware of what to look for will save you from making costly decisions. Here are 7 mistakes that happen often:
Mistake 1. Believing if you purchased a foreclosure, you got a bargain.
Know that the banks or government’s main objection is to clear their inventory and not lose money if they can help it. We have seen foreclosures where the price was too high and made no sense according to comparable properties. The way to avoid this is to work with experienced specialists who know the value of homes in the area. That is us!
Mistake 2. Overbidding and paying too much.
To properly bid, you must know the area and what homes sell for that are comparable properties. It is common now days to see homes ridiculously priced to encourage multiple offers. That is a marketing strategy.
Mistake 3. Not making the offer contingent on a home inspection.
Most homes sold in foreclosure are sold “as is”. They also let you know up front that they will not be making repairs. In Tennessee, non-occupant owners like banks or the government will give you a property disclosure exemption. Your best bet is to get a home inspection.
The best way to protect yourself is to make the contract contingent on a home inspection. Spending $350-1000 is much better than getting trapped in a home that becomes a nightmare. If the inspector finds major issues that will cost you more than you are willing to spend, this allows for you to get out of a bad deal. Hire a licensed home inspector to come in and check the wiring, plumbing, roof, HVAC, foundation, etc. This advice alone is worth its weight in gold!
Be sure to have the right to a final walk of the home right before close. Things may have happened to the home like water damage since you placed the offer. This is just good practice.
Mistake 4. Not ordering a title search.
You will normally receive a general Warranty Deed at close, which just shows that a seller holds the title free and clear of clouds, and is the rightful owner. You want a clear title because you don’t want liens, taxes and other people claiming ownership coming back on you at a later date. Without a clear title, you might not be able to get an owners title policy that will protect you against claims down the road.
Mistake 5. Not getting owner’s title insurance.
Lender’s will always require you to purchase title insurance if they have money at stake. Title insurance protects the lender, but an owners title policy can protect the new owner and their investment. This is something you DEFINITELY want to purchase. According to the American Land Title Association (ALTA), a third of properties on which title investigations are conducted show some problem with the title that must be corrected before the sale is finalized. The good news is you only pay for the title policy and owners title policy one time at close.
Mistake 5. Not having enough money for closing costs and not keeping money in reserve for repairs after closing.
Remember that closing costs are a part of purchasing a home. You will need to bring this to the closing table when you purchase. If it is an FHA loan, and you are having to pay repairs, they will require proof that you did repairs before you actually close on the home.
Mistake 6. Not having patience.
You have to buy smart when doing investment properties or foreclosures. Research is the key. Have the patience of Job!
Mistake 7. Being quiet and not asking questions.
Always ask for documents like inspections (if the seller did one before they put the home on the market), past-due HOA assessments and dues, surverys, repair receipts, permits, etc.
When purchasing a foreclosure or any home, you need guidance and someone who has a lot of experience. This is where we come in. We would love to work with you in purchasing a great home! Feel free to call us at 615-474-2808 or just fill out the form below!