Buyer Tips for DC, MD, VA Foreclosures and Homes for Sale

Posted by Lise | Filed under: Buyers

Buyer interest in foreclosures has definitely risen over the last few months.  Trulia found that 49% of Americans were at least somewhat likely to consider buying a foreclosure, up from 45% in May 2010.  But there are also concerns about the hidden costs and risks involved in the process.   Buying a foreclosure is not for the faint of heart, someone without an eye for detail, or those in a hurry.

The riskiest way to buy a foreclosed home is at the foreclosure auction itself.   The auctioneer stands on the court house steps and sells a home every five minutes!  With this time pressure, auction buyers often don’t have the opportunity to fully vet the foreclosure to ensure that they are receiving clear title and/or to make sure they’re not getting a lemon.   With that said, most foreclosures are resold not at the foreclosure auction, but as an REO (short for Real Estate Owned – by the bank), listed by a real estate broker on the Multiple Listing Service ! There are DC foreclosures from condos to luxury homes; Montgomery County has its share too, and there are homes to find in Northern Virginia from Leesburg to McLean to Arlington and Alexandria!   This is a much safer way to proceed, but you should still remember the following hints!

1.  As-is means as-is, period. (Most of the time.) Banks have very little interest, inclination or even the logisticallynecessary resources to execute repairs on your home. Many of these homes are managed by an asset management company in another state, and may not even have a local person besides the agent who can handle large repairs. Generally speaking, bank-owned homes are sold on a very strict “as-is, where-is” basis, which just means that you should expect to take possession of it, if you buy it, in exactly the position and location it is, no matter how defective.  Do not walk into a viewing of a foreclosed home, notice how the plumbing is all ripped out of the wall, and make an offer for it, assuming you’ll be able to get the bank to “fix” the issue later.  Usually, if the bank is willing to do any repairs to a foreclosed home, they do so, on the advice of the listing agent, prior to the home being listed.

If a foreclosure you’re considering has obvious property damage, have your contractor stop by with you or gather whatever information you need to get as comfortable as possible with your offer price, assuming that the bank will not be chipping anything in for repairs, before you make the offer.

2.  The bank has NO knowledge of property condition.
Many states exempt banks and other types of corporate homeowners from making substantive disclosures about the condition of the property.  Even in jurisdictions where the bank is not legally exempt, most banks will simply write across the required disclosures something to the effect that the bank has no knowledge of the property’s condition.   The bank never lived in the property, so it truly does have no idea of any important facts or details about its condition or location, the things an average home seller would be required to disclose.

Even in a normal transaction, it behooves a buyer to be thorough in having the property inspected and meticulous about reviewing the resulting inspection reports.  But buying a foreclosure is even more important because you have no seller disclosures to highlight particular problems you should have looked at, and none of the usual legal recourse you would have if a “regular” seller made incomplete disclosures.  Get a property inspection.  A pest inspection.  A roof inspection.  A mold inspection.

Yes – all these inspections cost money, but  each of them can save you lots of money in the long run.

Some insider tips:

  • Vacant foreclosures often have their utilities disconnected.  Work with your agent to make sure the utilities get turned on – even for a single day – so that your property inspector can run the water taps, test the stove and dishwasher, see if the water heater and electrical outlets work, and so forth.
  • The bank will not give you any sort of warranty on appliances, so try to obtain any warranty coverage you want or need elsewhere – from a home warranty company or, potentially, the original manufacturer/retailer.


3.  The bank’s contract terms will favor the bank.
If you’re buying a foreclosure, though, the bank will oftenrequire you to use its own purchase contract, rather than the more commonly used state forms.  Many times, this is done to advise the buyer of the bank’s refusal to make substantive disclosures (see above) and to change some of the normal practices for your area to the bank’s standard practices.

If you’ve been making offers on non-foreclosures on the standard contract form, or you’ve bought homes before and think you know the drill, please – I implore you – READ every word of the contract you sign when you buy a home from the bank, and ask your broker, agent or attorney to explain anything that doesn’t make sense. 

4.  Expect the unexpected. When you buy a foreclosure, you might end up working with the bank’s escrow company, instead of a company you or your agent selects.    The bank might rush you for your deposit money, but take their own sweet time coming up with the necessary signatures on their end to close the deal.   You might expect that the bank would be desperate for buyers, and instead find out that there are 20 offers on the same REO.  Or, you might be the only offer and still get your aggressively low (but still reasonable) offer rejected, only to have the bank reduce the list price of the home to the same price of your offer!  (They often want to see if exposing it to other buyers at the new, lower list price might generate more interest and higher offers.)

When you’re buying a foreclosure, expect glitches, expect your calendar to be derailed, expect the bank to be inflexible and possibly even unreasonable.   Having realistic expectations may keep you from pulling your hair out.  And if the transaction turns out to run smooth as silk?  You’ll be pleasantly surprised.

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17 Responses

  1. wade says:

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  4. Freddie says:

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  5. eugene says:

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  10. zachary says:

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  11. alexander says:

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