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Myth-busting: Real Estate Market Misconceptions, Part II
Note: This is the second in a series of articles about conditions in our local real estate market. The goal is to dispel rumors so you have an accurate view of the market.
Myth: The only good deals in real estate today are foreclosures.
Truth: There are some incredibly low-priced properties that have been through the foreclosure process and are now “bank-owned” or real estate-owned (REO) properties for sale. However, when evaluating a foreclosed property for purchase there are several questions to ask yourself before making the offer to purchase.
What is your risk tolerance? You are purchasing a property in “as is” condition with no warranties or promises; in fact, there are no disclosures offered on the condition of the property.
How much money will you have to make repairs and/or improvements? The asking price may be low and as appealing as that is, how much will it cost to replace the missing appliances? (Many foreclosed properties are missing kitchen appliances; some also may be missing basic bathroom appliances.) How much will it cost to make repairs to make the property livable? (Many foreclosed properties may have deferred maintenance issues such as broken windows, leaking roofs, missing flooring or cabinetry.)
Even more importantly: How much will it cost to get a thorough understanding of the property before making the decision to buy? This is definitely not the time to shortcut your inspection of the property. Hire a licensed home inspector to thoroughly investigate the condition of the home, roof, electrical, plumbing and ancillary utilities such as a well or septic system. Don’t forget to check the attic and crawl space as well. Add up the costs to inspect the property and your estimates for repairs and add this to the purchase price: then ask yourself if this is really the best deal available in the market.
Doug and Rachel S. were looking for a low entry into the housing market and set their sights on a real foreclosure fixer. Doug is an experienced remodeler and felt that he was up to the task.
“During the home inspection several electrical issues were brought to my attention but I still felt it was a worthwhile deal. Then the lender I was working with sent out a roof inspector who said that it had to be replaced, not just the patch job I had planned; the septic drain field failed the inspection and the well went dry after 20 minutes. At that point, I had to look elsewhere.”
Not every foreclosed property is such a nightmare. Dana H. bought a foreclosed home with another septic drain field problem but was able to have that repaired for less than $1,000. He added, “We also were able to reach out to the county and found programs that were willing to help with some of the cost of improving the septic system. PUD helped us install energy-efficient lighting and just recently gave us a credit for installing energy-efficient appliances.
“The Health Department had a program to help us install caps, risers and an outlet baffle filter, and they reimbursed us 50 percent of the cost of the improvements. Looking back at the process, getting inspections done above and beyond the normal building inspection were very important. Without the chimney/wood stove inspection we could have potentially had a serious fire risk and the septic inspection alerted us to the problems that could be fixed before they became very expensive.”
Another factor to consider when purchasing a foreclosed property is the amount of patience you will need. The lender selling the property may use a closing agent which is out of the area, may require you to use their specific forms, may ask you to sign waivers and may not respond to your offer for several weeks without explanation. Be prepared to wait.
Truth: There are comparable values in the market without the risk. There are motivated sellers who are willing to sell their homes below market value and in good repair. These sellers may be motivated by a variety of reasons including a need to relocate quickly, illness or due to financial reasons.
Truth: In 2010, 668 homes sold of which 101 or 15 percent were foreclosures. In 2011, of the 614 sales, 147 — or 24 percent — were foreclosures. To date in 2012, 156 sales have been concluded with 53 (or 36 percent) being REO or foreclosures. These numbers attest to the fact that while these properties are seen as “values” they are not the only values out there.
Truth: In 2011, of the 154 properties brought to auction on the Port Angeles courthouse steps in the past year, only four were bought at auction; with 148 going back to the banks according to Terry Roth, a registered processor who serves as the auctioneer.
“We have seen a marked decline in the number of foreclosures since November due to regulations and borrowers’ rights, but we are beginning to see them flowing through again,” he said.
Roth noted, “When looking at a bank-owned property, remember that if the owner didn’t have enough money to make the payments, he certainly wasn’t spending money on maintaining the property.”