What is the Usual Condition of a Foreclosure/Bank-Owned or Short-Sale?
November 14, 2009 by Danilo Bogdanovic
Filed under Foreclosure/REO 101, Short-Sales and Distressed Properties
If you haven’t bought a foreclosure/bank-owned or short-sale property in a while (or ever), you probably don’t know what the typical condition of such a property is. Here’s an idea of what to expect…
I’m working with a buyer who is buying a foreclosure/bank-owned property and did a home inspection this past Tuesday - here is what the inspection revealed:
- Exterior wood rot on upper rake and gutter boards, front window and door
- Gutter is falling - re-secure nails and gutter
- Re-wire attic fan
- Re-connect dryer vent in attic
- Repair 2×4 lateral brace by chimney
- Replace leaking interior hose bib shut-off valve
- Upper bathroom has loose toilet and tank - repair
- All windows are currently painted shut (thank you to Cheryl A for catching my previous typo - oops!) - free up for operation
- Repair small leak on lower powder room vanity trap
- Replace house roofing - interior attic system has severe black mold buildup - replace shingle and plywood - treat or clean attic trusses
How does this inspection compare to others? I have seen much worse and greater items on foreclosure/bank-owned and short-sale properties than this. Items 1 through 9 are typical if not less-than average. Item #10 is big item that is cause for serious concern though it’s not the end of the world. Check out photo of the mold below…
The good thing is that, even though foreclosure/bank-owned and short-sale properties are sold “as is”, banks are typically willing to fix mold issues. And once the necessary repairs have been made, the mold will no longer be an issue. The word “mold” is very scary to banks for a variety of reasons. Banks may either repair the mold issue or credit the buyer the amount to fix it themselves.
This home inspection is just one example of what issues you will come across. Here’s a partial list of some other common items you may see…
- water damage in ceilings/walls from leaky/busted pipes
- water damage in basement due to sump pump not working because property has no electricity
- missing appliances/fixtures
- electrical outlets not functioning
- window seals broken/leaking
- AC condensation line is leaking
- hot water heater is leaking
- bath tub stopper not working properly
- shower diverter not working properly
In the end, you have to add up the cost to purchase with the cost to fix and see whether it’s still a deal or not in the end. Foreclosures/bank-owned and short-sale properties should already be discounted to reflect the cost of fixing them up, but do the math and double check yourself before proceeding with the purchase of the property. Better safe than sorry.
One more thing…if you’re looking for the “perfect” foreclosure/bank-owned property or short-sale with no issues, good luck. If it were in that good of a condition, it would be more expensive to reflect the repairs and condition. You’re not going to get a foreclosure/bank-owned or short-sale property (or any property for that matter including new construction) that does not have at least a few issues that need attention.
Hope this helps. Let me know if you have questions or concerns or if you would like me to go into more detail about anything.
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Hi,
I run an home inspection blog in Israel and I want to thank for your interesting post.
Thanks again,
Dan.
Thanks Dan. How’s the real estate market in Israel compared to the US?
I bought a bank owned property over a year ago and had been dealing with flooding. When I looked at the property with an inspector in the basement there was no sign that the property had issues with flooding in the basement. After I moved in the property would flood up to 3 inch covering the basement and of course the rain was a factor so I got the gutters cleaned and added gutter extensions and yet it still floods just not as bad. Now after so many times my hot water heater being wet, it no longer comes on and I have no hot water. I don’t know what to do because my insurance company says they don’t cover floods even though I found out that the issue is because of a high water table, failed footer drains and possible Hydrostatic issues. I’m soooo ready to walk away because I cannot afford to pay for hot water installation right now and mortgage. I feel betrayed that there should be a sign and we the inspector and I would have seen it.
Melissa,
I am sorry to hear about what happened. It’s never fun nor cheap to find out there’s a major repair necessary right after you move in. Though a big sign warning you about it would be awesome, that doesn’t happen. Inspections are limited to the naked eye - the inspector can’t always tell what’s on the other side of the wall or foundation - which is why these types of situations arise.
Is there a 100% fail-proof way of knowing absolutely everything that may be wrong with the property or if something will need repair right after you move in? No.
I wish I had an answer to give you that would make the repair cheap or easy, but there’s not one. I hope that things work out with the hot water heater and overall situation soon (and for as less money as possible).
My wife and I have been looking to buy a home for the past month. All listings that we initially flagged as preferable were short-sale or bank owned and it’s very true that these properties are often in less than desirable condition. We’re big on DIY renovations and such, but unfortunately, this “buyer’s market” is really only for investors. Banks do normally dish out credits or fix certain major problems with the properties, but now, they just want rid of the property - cash upfront. It’s cut throat in the real estate market and we seem to be digging ourselves deeper and deeper into the hole this way.
A horrible example - a small 2bd/1ba bank owned sold to an investor for $99k. The bank refused anyone but a cash buyer. An investor bought it, put $25 in repairs and now it’s back on the market for $215k.
My wife and I want a place to settle into, a home. Not a property to flip. These ongoing circles are absolutely disgusting. Not sure if I would advise taking the time on distressed properties.
Kalib
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