Over the past few years, most brokers have had a buyer client, who ends a conversation by saying, ‘Oh, and I want to look at foreclosures too. ’ This is not a casual and breezy proposition.
Somehow during the downturn, it became fashionable for the media to suggest that the average homebuyer consider purchasing foreclosed homes as a way to get an even bigger price reduction from an already distressed environment.
The presumption of these articles was generally that these were typical houses, which banks were anxious to get off their balance sheets and sell for a fraction of their previous value.
In reality, going through the process of purchasing and taking on a bank owned property is not for the faint of heart.
Connecticut has been relatively fortunate that foreclosures have not made up a significant percentage of our total real estate market. Florida, California, Arizona, Nevada have all worked through a massive glut of bank owned properties, many of which came from the last boom in new construction.
Those homes may have been in good shape but here, foreclosures tend to be older and more individual and that often makes it trickier.
The MLS currently shows 139 REOs (real estate owned) out of 5,965 total homes actively for sale in Fairfield County—about 2 percent. Just looking at the listings, some appear worth a visit but, as with any home purchase, due diligence is essential and with bank owned properties, you really have to dig deeper.
"Sold as-is" is pretty much a given. Banks are not obligated to provide standard disclosure statements because they have never lived in these houses. So, you have no idea if the basement floods, lead paint exists or termites are tunneling.
Going through many of these properties, you see general neglect and disrepair, often no appliances, sometimes no mechanicals, copper wire and pipes ripped out, holes where A/C units used to be—and you can experience a variety of unpleasant smells.
Even the homes that look good on the surface may have issues like a buried oil tank or problems with the well and septic all of which are not only big expensive hassles but, might mean banks will not consider financing depending on the degree of ‘habitability’ as determined by the appraisal.
If you decide to move forward, you still have to get the bank to actually accept your offer and get a clear title of ownership. Where there was a mortgage default, there still may be other undiscovered liens against the property.
There is also real competition for the homes that are seemingly problem free, and banks often require online filing for offers to purchase their REOs. In other words, it’s hard to get an actual person on the phone to even know where your offer stands. The intent of computer automation, of course, was to make the process uniform and efficient, but the reality can be one long episode of Survivor.
Although some bank owned properties look like good buys, if you add up the "cost-to-cure" expenses you might not be getting the deal you think.
When we see the press tout all the big financial investors running to foreclosure auctions to snap up properties en masse, it’s tempting to think we can jump in too. But buyers need to be very, very realistic about the level of risk, complications and frustrations that come with foreclosed properties. In the end, a regular old home purchase is really exciting enough.
The Darien Real Estate topics page, which includes:
- Youtube Open House (videos for homes on the market)
- Open house listings and more on Elaine Falkenberg's real estate blog
- Karen Brewer's real estate blog
- Betsy Nolan's real estate blog
Property transfers (and open houses) columns in area Patch communities:
Darien | Fairfield | Greenwich | (Greenwich open houses) | New Canaan | Norwalk | Stamford | Westport | Weston-Redding-Easton | Wilton