Discount-priced foreclosures and short sales can come with a plethora of expensive problems so it is vital that you hire a real estate broker with vast knowledge and expertise in buying and selling short sale properties. Michelle Mahzari, CCIM and IMAX Premier are well-equipped to assist you purchase a home as a short sale and prevent you from making these five common mistakes.
1. Ignoring Property Problems
Foreclosed upon properties are susceptible to deliberate damage from frustrated homeowners who don’t want to leave or inadvertent issues resulting from neglect if the property has sat vacant for some time before purchase. Banks are typically exempt from providing the disclosure agreement, usually required of a traditional seller, that outlines the condition of the property. Homeowners undergoing a short sell will fill out the disclosure form. These homeowners are motivated to sell and repair their credit but in their financial distress they could have neglected essential maintenance on the roof, air conditioner furnace, and hot water heater. Be aware that any home that is between 15 to 30 years old has a good chance of needing expensive repairs and maintenance Additionally, the cash-strapped seller is unlikely to have given the home a cosmetic face-lift for quite some time, so be prepared to renovate some outdated aspects such as carpet or wallpaper.
2. Skipping the Home Inspection
Be sure when purchasing a short sale to accompany the inspector for the home inspection. Be sure that you have a comprehensive understanding of the condition of the home so ask plenty of questions. This is the time in which the house is open for all criticism and inquiries and being aggressive when it comes to asking questions can result in some information that reduces the price of the home and saves you money. Ask the inspector for repair estimates whenever they note a problem and do your own research as well.
Consider having the inspection performed prior to even making an offer; an option becoming more prevalent in California and Florida where short sales are plentiful. Most inspections are performed after the initial offer with the sale contingent upon the mutual agreement of remedies and repairs between seller and buyer. An inspection prior to the initial offer allows buyers to walk away and search for a better home.
Also consider hiring specialized inspectors for problems such as termites, mold, and structural damage especially if such problems are prevalent in the area. Ridding a home of mold gets more expensive the more time elapses, and can have serious detrimental effects on your health and the resale of the property. If you notice sloping floors or cracks in walls or around doors, windows, and basement walls, hire a structural engineer for a full report and repair recommendations.
Consider contacting neighbors to find out any other information the seller may not disclose and the inspector will not discover such as high crime or loud neighbors.
3. Ignoring Legal and Insurance Information
Disclosure agreements will typically indicate if a property is in a flood plain or has had any unpermitted renovations. If the property is in a flood zone, you may end up paying thousands per year in additional insurance costs and it can make reselling the property difficult. Ensure that any renovations to the home have been permitted and approved; if not, you may be cited.
4. Leaving Too Little Time
Short Sale homes won’t necessarily close as quickly as a traditional home. The short sellers lender must first approve the short sale price and the banks, overwhelmed with foreclosures, may be slow to respond to the short sale approval price. Legal issues that can influence the time to close as well.
5. Falling Hard for a Bad Home
Don’t just assume you are are receiving a great deal; consider the condition of the home, results from the inspection, and price and value dispassionately.
Ask yourself the following questions:
If you were to purchase this home could you afford to rent it out for as much, or less than, your mortgage payment?
If the home’s value drops another 20% will you still be happy with your purchase?
How much money are you going to have to invest in this property?