TEXT OF INTERVIEW
Tess Vigeland: Now to the practicalities of buying a foreclosed home.
John Anderson is with Twin Oaks Realty in Minneapolis. And I asked him whether most bank-owned properties might seem too good to be true to some unseasoned buyers.
John Anderson: I believe that foreclosures are a terrific deal, but with a couple of caveats. First of all, just because it says the word “foreclosure,” don’t just assume that it’s a terrific deal.
The first thing you want to do is really familiarize yourself with the market, because sometimes these banks put ’em out there on the market, and they’re just picking a number to see “Can we get this for it?” So it can be a good deal, but watch the price.
Next thing that I’d talk to about is in the area financing. A lot of the foreclosed properties out there, first of all, a number of them are not even eligible for any financing; they’re cash only.
Vigeland: Why would they be cash only?
Anderson: Well, in a lot of cases, they’ve had the plumbing stripped out, they possibly might have a roof that’s leaking, they might have the furnace or central air conditioning, electrical… I’ve seen them in all different conditions, stripped totally out. The mortgage companies, they have minimum standards in order to put a mortgage on a house. Not just value, but the condition of the property. And in the banks selling case, they are selling these properties as is. They’ll say, “We’re not going to do that work, we’re not going to put that new roof, we are not goring to replace the furnace — it’s as is.” In most cases, the buyers don’t have enough money to do the work nor are they even allowed to do the work before closing. So that just kind of eliminates those properties that aren’t ready or eligible for financing.
Vigeland: Well, if you have a buyer who has done their homework, they’ve looked around and they’ve decided that this indeed is a good deal, how is buying a foreclosed home different from buying any other home, if at all?
Anderson: You’re not going to get a seller’s disclosure; there’s no history. So I think it even puts an even greater emphasis on having home inspections. I’m a strong believer in home inspections in every transaction, but when you’re getting down to a home that you have no seller’s disclosure, no history and it’s being sold as is, make sure you know what you’re getting into. So, do the inspection, do your due diligence.
I think the other thing is, in some cities, they require inspections when a property is resold. Most banks are going to require the buyer to take responsibility for those. Sometimes there are unpaid water bills or utility bills — you need to make sure those have been covered. If you don’t do that research, you might get stuck with something that you weren’t expecting.
Vigeland: Now I assume that all of this advice would apply as well to a short sale? How is that different if at all?
Anderson:I think the biggest difference with short sales is that, first of all, you are still dealing with a seller. In most cases, the sellers are still in the property. It may be in the process of foreclosure, it may be in the redemption period. But the bank has not yet taken back title to the property. So in that case, you’re dealing with a seller, first of all. Typically, as is, but probably the number one thing I tell with short sales — and I’ve seen them take response time anywhere from two weeks to nine months.
Anderson: So I ask the buyer right up front “What’s your situation? Well you’ve gotta be out of your lease the end of November. This is short sale; this may not be the right deal, unless you’re going to live with mom and dad until we hear a response back.”
Vigeland: I’m just curious, having shepherded clients through the process of buying foreclosed homes, is it something that you would consider doing yourself
Anderson: I definitely would consider it. I’ve looked at some of these and said, “Wow, these are some fabulous deals.” If I was ready to move, that’s one I would consider.
Vigeland: John Anderson is with Twin Oaks Realty in Minneapolis. Thanks so much for your time.
Anderson: Thank you very much.