Did you wake up on January 1 ready to buy a Glendale home? I bet your first thought was, “How can I get a smokin’ hot deal on a short sale or a foreclosure?” I’ve written a bunch or articles on just that topic, so this article is about the wet blanket of reason.
A distressed sale CAN be a great deal, but the wise buyer goes into this process forearmed and prepared.
Finding the Home
The first pitfall for most Glendale homebuyers is at the very beginning. Finding a distressed home that the average person can actually buy is tough!
There are 2 man ways to find a distressed home. Paid services will send you lists of homes that are behind on their payments or foreclosed. However, these homes are usually not ready to consider an offer let alone sell. The MLS (multiple list service) has homes that are advertised as ready to sell, but there are pitfalls! A short sale (the homeowner owes more to the bank than they can get from selling the house) is often not a buyable home. An REO (bank owned or foreclosure) is definitely going to sell, but there is stiff competition from all cash investors.
It is a mistake to assume the bank is following any rules of logic that you can discern. Buyers always assume the bank will act in their own best financial advantage in a particular transaction.
However, a bank is completely uninterested in what is fair or reasonable or, seemingly, what makes good financial sense. The bank is looking at an entire book of business and their decisions simply can’t be understood by someone who is only looking at a single home.
Disclosure (or Lack Therof)
If there is any caveat emptor (buyer, beware) in Real Estate, it is with foreclosures. The bank is obviously not in a position to disclose anything and a foreclosed home has experienced a world of hurt and drama on the way to foreclosure. I hate to say it, but there are all sorts of issues that a home inspection can’t reveal. Property line disputes, neighborhood nuisances, on going maintenance issues and proposed changes to the area are just a few things that you would want to know. A normal seller would have to disclose all of this, if it were relevant. A bank? No Way Joe. (Or Jill)
It goes without saying (but I will anyway) that a distressed home is probably in poorer condition than a regular sale. The funny thing is that the cosmetics- paint, carpet, cleanliness, is often surprisingly nice. This is because the banks have learned that buyers will make emotional decisions based on what they see. They throw in apartment grade carpet, slap on a coat of Realtor Beige paint and haul out all the trash. Buyers- probably a bit high on the paint and carpet fumes, assume the house is in much better condition than it really is.
Time is another huge issue. The bank will sign a contract, respond to a request or close an escrow whenever it feels like it- and it will be much longer than you think is reasonable. If you threaten to walk away the bank will not notice and they will not care. (see bank mentality)
Time is particularly a pitfall with short sales- which are anything but short. A typical sort sale takes three to five months and it could take as long as a year. At any point the deal could fall apart for reasons completely outside of your control.
During this months long stint in limbo you, the buyer, might miss out on a more obtainable home or interest rates could go up.
You can get a great house for a great price when you buy a distressed home. Just be sure to look at the whole picture, look at the home objectively and let go of your need for people to act in a manner that seems reasonable to you.