By Andrew Smith, CCIM
Our phone calls and emails are full of inquiries from Buyers looking for properties that have been foreclosed on, or are ready to go to auction. We are happy to help, and many seasoned Buyers are making great buys on bank owned property. However, this is not an area we recommend for first time homebuyers, or those with limited resources. Buying these properties can be very lucrative, but can also be very risky.
When you bid on a property at a foreclosure auction, you must be prepared to purchase that home with out any contingencies. If you are the winning bidder, you will need to put up approximately 10% of the purchase price in non-refundable funds, without financing or inspection contingencies. You need to be able to close in 30 days, and you are buying the property from a Seller that knows nothing about it. You don’t know if the heat and plumbing work, or if the roof leaks when it rains. You need to be in a position to handle these surprises without putting your family in a difficult financial situation.
Bank owned property can also be a great opportunity, but you do need to be ready to take more risk. Many of the OREO (bank owned) property available in this area is owned by finance companies or out of state banks. They also do not know anything about the property, and will make very limited representations about what they will and won’t do in the sales process. For instance, if the water has been shut off, they may not make any representations as to the condition of the heating and plumbing, and will put the responsibility on the Buyer to bear the expense of getting it turned on for inspections, or take the risk that it may or may not work after they buy the property. This makes it a very difficult and risky purchase for a first time home Buyer with limited cash. If you are a seasoned investor, and can take some risk, you may consider seeing what’s available. The full time professionals at Peabody & Smith would be happy to discuss the pro and cons of this type of investment with you.
