5 Foreclosure Curve-Balls and How to Avoid Them

by Nick Bert II on March 2, 2012

Whether you’re an investor looking for a rental , or a first time buyer looking for a great starter home, there are several costs – in addition to the purchase price – that you must include in your calculations when you’re buying a foreclosure. Extra fees such as unpaid utilities and re-winterization may surprise you with an unwanted financial nightmare towards the end of your transaction if you’re not prepared.

A few of these costs may seem too small to worry about, but together they can add up. Some of these costs do not apply in every situation, but it’s better to know about them going in than it is to get be caught off guard at the end of a transaction.

For many people, buying a home is a major milestone. It doesn’t matter if this is your first, second, or twenty-second home; there are a ton of very important details that need addressing throughout the process. The last thing anybody needs is to have a bunch of unexpected financial obligations popping up just hours before they take possession of their new home.

Foreclosures are almost always priced well below market value. Conversely, they come with some extra costs you need to be aware of. Read through the following check-list to make sure you’re prepared for the 5 different curve-balls that foreclosures can sometimes throw you.

1. De-winterization and Re-winterization. Winterization is a strategy foreclosure sellers use to keep pipes from freezing and cracking during the cold winter months. If you decide to do a home inspection (and you should,) they will require you to have the have the home de-winterized and re-winterized, immediately after your inspection. Some of them will pay for this, but some of them will require you to pay. The ones that charge don’t always tell you until after you’ve agreed to purchase the home! The cost for this in my area is usually between $150 and $300.

2. Un-permitted and un-inspected home improvements. When you buy a foreclosure, the sellers will usually insist you sign an addendum that says the sellers have no idea about the condition of the property or whether or not any work has been done or if its been done with permits. In some areas when un-permitted or un-inspected work has been done, the the city may require you have the work re-done to code, and then inspected before you can move in. Most foreclosure are sold as-is, so the cost of these repairs would be yours. So be sure to keep an eye out for this during your inspection. You’ll also want to be sure that somewhere in you contract it states that you’ll be allowed to terminate the agreement if the sellers don’t agree to fix any uncovered issues.

3. Unpaid Utilities. Some utility companies do not pursue previous owners for past debts. These bills instead get tied to the property. Some foreclosure sellers will not pay these back owed utilities. The only way to be sure that this is not going to happen to you is to call the utility companies directly yourself.

4. Mailbox Keys and Garage Door Openers. In most cases foreclosure sellers won’t have these. Though not terribly expensive, this is more of a nuisance that catches a lot of home buyers off guard. Universal garage door openers can be purchased for around $10, and a new locking mail box should be under $100. If you’re buying a condo or a home in a neighborhood that features a locked Cluster Box unit, you should be able to a key through the property manager or president of the Home Owners Association.

5. The Re-Key. Many people will hold the keys to your new home starting long before it is listed for sale. It’s always a good idea to change the locks when you buy a new home. For some foreclosures it is a requirement. They will Re-Key the home whether you want it done or not, and it will appear on your closing statement. It’s a few hundred dollar surprise for some people, but it won’t be for you.

Buying a foreclosure will likely save you tens of thousands of dollars, but they’ll also come with some extra costs unique to foreclosures. Though these extra costs will catch an unprepared buyer off guard, but you’ll be prepared. It still may be wise to acquire the help of a professional with foreclosure experience. Most Realtors won’t charge you to represent you as a buyer. There are a lot of different foreclosure sellers out there still, and while this list will help you prepare for some of the more common surprises, it doesn’t cover everything. A good pro could help you fill in the gaps.

Nick Bert is the President and CEO of Washington Realty Source, and he specializes in helping First Time Buyer and Investors quickly and easily locate the best deals on Snohomish County Foreclosures. Don’t miss his coveted Mill Creek Foreclosures List which features amazing deals on the hottest properties in Mill Creek, WA.

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