Should A First Time Home Buyer Buy A Foreclosure?
Posted on November 21, 2007 |
What a coincidence twice in one day, I had two first time home buyers ask me about buying foreclosures.
Dear Steve,
Do you have an opinion on foreclosures? Obviously, the no warranty (disclosure) part is disturbing, but in your experience, is a pre-purchase inspection typically enough to make it worthwhile?
Also, I don’t know anything about Missouri or Kansas law regarding an owners’ right of redemption. Is there a possibility that an owner could preempt my offer?
FORECLOSURES - In some cases the owner does have a right of redemption. In some cases they do not. We would have to check on each particular property. How’s that for a “lawyer like” answer?
Worse than preempting your offer, I have heard of people redeeming the property up to a year later, even after a buyer bought it and began repairs! Obviously, they did not do their homework.
Provided there is no right of redemption, my personal experience is that I would almost never recommend one for a first time home buyer for the following reasons:1) The previous owners seldom could afford to maintain the home properly so there will likely be issues. Not only maintenance, but they frequently have damaged the property.2) Many times the house sits abandoned (not maintained) for months or years before it even gets put on the market. So it will be run down and perhaps have rodents, mold, or worse.
3) As with any renovation, the buyer must be prepared to handle the unexpected ($$$). Many times you don’t know what you could find when you start fixing things. A simple job like replacing some tile in a bathroom could lead to all new drywall, flooring and/or cabinets. Or worse mold remediation. You just don’t know and unless you are prepared for it time wise and financially, don’t take the risk.
4) Many times the reduced purchase does not equate to the cost to fix it. Keep in mind, if you cannot do the work yourself, a bathroom can cost $2,500+, a kitchen at least $10,000+, new carpet $3,000+, Exterior paint $2,000+, Interior paint $3,000. Foundation issues $500 to $25,000. A new fence $3,000+. The list goes on. If you can do the work yourself, the costs are about half.
I couldn’t sleep nights knowing I put a family in a home that they were not able to live in or couldn’t afford to fix. You would not believe the homes I have seen.
That being said, I might recommend a foreclosure for a first time home buyer that:1) Has another place to live during renovations.
2) Is an experienced carpenter or tradesperson.
3) Is looking to create something very nice and financially prepared to make the investment.
4) Is ready to act fast. The good ones don’t last. We need to constantly watch and jump quickly on them.
There are some good deals and I am not ruling them out, but please do extra research, make sure everyone on your side (realtor, home inspector, home contractor, etc.) knows what to look for and even then be prepared.
DON’T GET IN OVER YOUR HEAD.
I like to sleep at night.
Steve Kornspan
RE/MAX PREMIER
Steve@SteveKornspan.com
www.SteveKornspan.com