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Pitfalls of Buying a Foreclosure

Buying a foreclosure is one way that an owner-occupant or investor can really get an excellent deal on a property but the financial rewards are not without the potential for a number of risks and potential pitfalls along the way. Unfortunately, there are a number of potential concerns when it comes to buying a foreclosed property ranging from minor bumps in the road which may simply cause a headache to major concerns that could cause your investment to cost a whole lot more than you had planned. Avoid these potential pitfalls when purchasing a foreclosure:

Lack of Personal Appeal

If you've got plenty of time and you're not in any sort of a rush to purchase a property than this really is not a major pitfall for you, but if you want to move quickly and really need a home, buying a foreclosure could be a waste of your time. The home is no longer owned by an individual and therefore the sale process could take weeks or even months longer to complete as there is no true motivation behind the deal. You may find that you put in an offer to the bank that owns the property only to wait weeks or even months before you receive a response. Purchasing a foreclosure is an impersonal process and it isn't always a fast process by any means.

No Disclosures

Bank owned properties do not come with the same "mandatory disclosure" rules that you would expect from a private seller. What this means is that you will have no real knowledge of what the previous seller's experience was with the home or the neighborhood and you essentially go into the purchase of the home blindly. You can always check permits and double check the title report before making any final decisions but this can leave out that personal touch that you would typically receive from a seller disclosure.

There's Nothing Left!

It's very common for a foreclosed property to be sold as-is and to be totally stripped of just about everything of value. Be prepared to walk into a property with no appliances, missing fixtures, damaged walls and a number of important elements of the home having been removed before you ever get your hands on it. While you may be able to replace certain items at a relatively low cost such as light fixtures and faucets, items such as hot water heaters, air conditioners and other major appliances could become a very costly process to restore and they are all necessary in order to deem the home "livable" once again.

Repairs are on You

Another major pitfall to purchasing a foreclosed property is that the property may have a major need for repairs. With bank-owned properties, the buyer is always responsible for these costs, as the bank does not invest any money in to the home. The bank is also unlikely to provide any sort of credit or discounted price to cover missing appliances or major household items. You'll be assuming the property as-is with no guarantees and no real help about covering the costs for repairs. Remember too that the lack of disclosure makes it hard to know if there may be other problems lurking in the home which may not be realized right away and could add to the cost of repairs later on.

Always consult with your real estate agent to gather as much info on the property as you can, and make sure your offer includes an inspection contingency, which allows you to walk away from the deal (and not lose your deposit) if you aren't pleased with the home inspection report.

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