What is the Usual Condition of a Foreclosure/Bank-Owned or Short-Sale?

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:

1. Exterior wood rot on upper rake and gutter boards, front window and door
2. Gutter is falling - re-secure nails and gutter
3. Re-wire attic fan
4. Re-connect dryer vent in attic
5. Repair 2×4 lateral brace by chimney
6. Replace leaking interior hose bib shut-off valve
7. Upper bathroom has loose toilet and tank - repair
8. All windows are currently painted shut (thank you to Cheryl A for catching my previous typo - oops!) - free up for operation
9. Repair small leak on lower powder room vanity trap
10. 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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Do You Get a Home Inspection With a Foreclosure/Bank-Owned or Short-Sale Property?

You may be wondering if you're able to do a home inspection on a foreclosure/bank-owned or short-sale property prior to writing an offer or afterwards. Well, the answer is "no" and "maybe". The "no" is the easy part - the "maybe" is where it gets tricky.

The easy part…You definitely do not get to do a home inspection prior to submitting an offer. That's the case with most all residential real estate sales - foreclosures/bank-owned properties, short-sales, traditional resales and new construction.

The tricky part…you may or may not be allowed to do an inspection of the property after verbal or written ratification. Let me explain…

Some banks will let you do an inspection of the property within a certain time frame from the date of ratification, either written or verbal ratification. If that's the case, you can have the property inspected and if there are "material deficiencies" (e.g. cracked foundation, water damage, holes in the roof), you can give notice to the bank and walk-away from the contract. You must provide the inspection report noting the "material deficiences" along with the notice that you're walking away within the specified time frame.

But…

Some banks will not allow you to conduct an inspection nor have a clause that lets you pull out of the deal if you find something "wrong with the property" after the contract has been ratified. And no…you can't just ask your agent to "open the door for you" and let you waltz around the house doing an inspection anyway.

The contract will most likely state that the bank will give you "reasonable access to the property" and accessing the property for an inspection that is not agreed upon in the contract is not "reasonable". I'm not a lawyer, but I wouldn't be shocked to find out that the bank may view something like that as trespassing and possibly a breach of contract. (Thank goodness that I've never had to find that out for real)

How do you know if an inspection is allowed and whether there's a clause that protects you and leaves you a way out?

Have your agent find out for you or, if you're in Dual Agency, ask the listing agent (I do NOT recommend Dual Agency, but that's for another post). There are other ways to protect yourself such as putting certain language in your offer, but I won't get into details about that here on this post.

And make sure you find stuff like this out before you write an offer so you're not wasting your time nor getting stuck buying a property that ends up being a lot more hassle and work than you originally thought.