6 Costly Pitfalls to Avoid When Buying a Foreclosure

by Nick Bert II on February 22, 2012

Buying a home can be an enjoyable and rewarding experience, and for most people their home will serve as their single largest investment. If you’re in the market for a home right now then you probably already know that foreclosures are whats hot right now. Foreclosures often look like every other home, but costs tens of thousands of dollars less. Choosing this type of property will undoubtedly save you some money. As with any home purchase there will be some costs. But these costs can be much greater for the buyer who doesn’t take a minute to plan ahead. Most unprepared buyers are likely fall victim to at least some of these buyer traps:

Paying to much for the home they want, or

Losing their dream home to a more prepared buyer or,

(even worse) purchasing a home that won’t meet their needs.

Fortunately with a little thought and preparation you’ll be able to steer clear of these common pitfalls, cut costs, and secure a home that meets your needs. There are 6 very common and costly home buyer pitfalls and I’m going to show you how to avoid them. The six foreclosure buyer pitfalls are:

1. Bidding Blind. Now that we’ve found our dream home, what should we offer them? The mistake that most buyers make is to low-ball and already amazing deal. If a home is under-priced as foreclosure usually are, you will frequently see multiple offers. When there are multiple offers, somebody is almost always going to offer the list price. If you love this home, and it sees multiple offers and you’ve written a low one, you’re going to lose it. But you also don’t want to over pay either. To avoid losing your dream home and to avoid overpaying, you’ll need to do a little research. Certain websites or an experienced Realtor can provide you with a list of recent area home sales. The key is to know what homes are actually selling for, and not what they’re being offered at.

2. Buying the Wrong Home. What are you looking for in your new home? This is an easy question that can create a complicated set of answers. More homeowners than you might think have purchased a home that isn’t the best fit for their needs. Some people see the granite counter-tops and stainless steel appliances that they’ve always wanted and sometimes overlook their more basic needs. Take a minute to create a list of your needs and wants and keep this by your side as you search for your home. This list will serve as your yardstick; use it to measure each and every home.

3. Unclear Title. Nobody likes last minute surprises. Especially when those surprises can cost you your dream home. Perform a title search early on in the transaction to be sure your home is free from undisclosed owners, leases, easements, or tax liens. In many areas Sellers will pay for all of some of this expense, but this is usually not the case with foreclosures so plan accordingly.

4. Not Getting Mortgage Preapproval. Getting preapproval is fast, easy and free. This is more important than ever in today’s housing market. If you’ve begun your search already then you know that Bank Owned Properties, and Government Foreclosure are the best deals available right now. These types of Sellers require a preapproval letter to even consider your offer. They all do. And don’t kid yourself. Everybody is looking at the same list of homes that you are. They too will know that this foreclosure is just like the other homes on the block, only $20K cheaper. If the other buyers are preapproved and you’re not, they get the house and you don’t; it’s that simple.

5. Contract Misses. The Government and Banks are overwhelmed with foreclosures on a national level. Unfortunately one of the things they do to help lighten the load is to kick back incomplete offers or offers containing errors. Miss and initial, or forget to sign in blue ink on a HUD home and the deal is lost. To help you get through this process, I suggest recruiting a Realtor with foreclosure experience. Even if you have the help of an agent, you’ll still want to check every line of your purchase agreement for missing initials, or incomplete fields. Again, multiple offers are common with foreclosures, and an error in a contract could lead to the sellers selecting a different offer.

6. Undisclosed Fix-ups. These are possible in any type of home purchase, but are more likely to occur with foreclosure properties. The reason is that the Sellers of these types of homes were not the ones who were living in the home. They probably won’t know if any work was done, or if it was done with a permit. Certain types of updating must be done with a permit, and inspected. If this doesn’t happen, the city or county could require you to have this work redone with a permit and then inspected. This can be expensive, and since these homes are sold as-is, it would be at your expense. In these situations you may not be allowed to inhabit the home until all work is done and inspected. To avoid this, have your home inspected, and if work has been done, check with the county to see if a permit was recorded. Not all work requires a permit, so consult with your home inspector first.

To assure a smooth transaction, take a minute upfront and do a little preparation. Create a list of needs and wants then research recent home sales. Talk to a lender and get pre-approved. Triple check your purchase agreement for errors, have a title search conducted, and always do a home inspection. Foreclosures are a little bit more work, but can save you tens of thousands of dollars. A Realtor experienced in the Foreclosure process can help simplify the process and minimize your risks.

Nick Bert is the President and CEO of Washington Realty Source, and he specializes in helping 1st Time Buyers and Investors quickly and easily locate the best deals on Snohomish County Foreclosures. You wont want to miss the Edmonds Foreclosures List which features unheard of deals on some of the hottest properties in Edmonds, WA.

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