Real Estate Bargains Foreclosures, Short Sales, Florida Condos…Beware

Allow me to begin with this caveat. As I have mentioned repeatedly, the western Pennsylvania real estate market has been spared much of the devastation we have seen nationally in the real estate arena. Our greatest challenge has been trying to make potential home buyers understand this. There isn’t anything more frustrating than dealing with buyers who believe that every seller is in desperate straits and so begin their negotiation at a price point so low that we risk losing the deal. As a rule, a seller may provide a deal sweetener (a warranty or pay some closing costs) but a wholesale reduction in price isn’t probable.

With all of the apparent mayhem in the real estate market nationally, it is understandable that one may be looking for an opportunity to make themselves a GREAT deal. It is important, though, that you understand what you are doing before you sign on that dotted line.

Consider the foreclosure or bank-owned property. These are houses that the owners have already lost. The primary problem here is the condition of the property and the possible issues are many. As foreclosure is a lengthy process, the property may have been vacant for an extended period or it may have been subjected to the ire of the previous owners, disgruntled over the loss of their home. I have seen many homes damaged to a ridiculous degree by the former owners, removing items of value, including things as integral to the nature of the home as windows and furnaces, copper plumbing and wiring. In other instances, it is just damage, plain and simple.

The very fact that the property has been sitting vacant for a protracted period creates issues. Perhaps the most significant defects could come from the home going through a freeze/thaw cycle. If the home has not been properly winterized and the utilities are off, there could be frozen water lines that won’t show up as a problem until the utilities are restored. Additional, serious damage can be done at that point as the water comes cascading through the walls and ceilings.

In a ‘normal’ real estate transaction, a seller is required to disclose known defects. A bank-owned property doesn’t come with these protections. You will be required to buy the property ‘as is,’ with the bank denying any knowledge of any condition. Further, although you will be permitted to perform whatever sort of inspection you would like, the bank’s contract with you will likely inform you that they will make NO repairs and that these inspections are being done purely for your information. The contract cannot be voided as a result of conditions your inspection discloses, and generally it is stated very clearly that if you back out of the agreement for any reason you will forfeit your earnest money.

Based upon all of the foregoing information, you cannot seriously contemplate such a purchase without having a very thorough property inspection. The bank will allow you to have the utilities turned on, so turn them on and inspect the heck out of the place. It is far better to spend a little money on these inspections than to find out about the defects after you are the proud owner of a money pit.

Now, what about a short sale? This is a situation where the owner of the property owes more than the market value of the home. Here your problem isn’t likely to be property condition, but rather bank cooperation. For example, a seller places his house on the market at market value, which in this case is less than he owes. You wish to buy it (your broker will likely inform you in advance that the purchase will require bank approval). At this point the waiting game begins, as the seller attempts to prove that your offer is the best they can get and that they have no other way of making up the deficiency.

There isn’t much you can do to expedite the process—the bank won’t seriously discuss a short sale with the seller until they have an offer. All you can do is wait while the seller provides reams of documentation to prove their case. My advice? Don’t get involved with a short sale unless you have the time. If you are closing on the home you sold in 30 days or if you are a first-time home buyer and you want the first-time buyer tax credit, (the incentive expires April 30), find a different home.

Finally, a quick word on Florida condos. You may be attracted to the low price of a foreclosed condo. Consider this—condos come with a maintenance fee. This money is contributed by the condo unit owners to pay monthly common expenses, building upkeep, etc. If the building has a high degree of vacancy due to foreclosure, how are these expenses being paid? A good question to ask! HAPPY HUNTING!

Gary Straub has been a real estate professional since 1970 and is a member of the Northwood Realty management team.