Are you planning to go on a bargain hunt for real estate in the near future? If so, you’re likely to encounter numerous vacant homes, including many that have gone through foreclosure.
“Nationwide, we’re at an all-time high for vacant homes in major markets,” says Dorcas Helfant, a Coldwell Banker broker and former president of the National Association of Realtors (www.realtor.org).
One obvious reason for the multitude of vacant properties is that many homeowners, faced with a tough economy, have been unable to keep current on their mortgage payments. Perhaps they’ve lost a job or had to give up their home after a large increase in their adjustable-rate mortgage payments.
“There’s now a plethora of homes in all price ranges that have gone through foreclosure and fallen into bank hands. Their former owners are long gone,” says Merrill Ottwein, a broker and past president of the National Association of Exclusive Buyer Agents (www.naeba.org).
Ottwein estimates that 80 percent of the foreclosed properties now for sale are in fair-to-good condition. But he cautions that the rest include many “dregs” that were neglected or abused.
“In extreme cases, some of these houses have been deliberately trashed. They’ve been cannibalized by the people forced out. Because they’re angry about the foreclosure, their former owners often rip out appliances, light fixtures – even toilets and sinks,” Ottwein says.
He advises those considering the purchase of any vacant home to make sure they’re getting a true bargain rather than a money pit that will require sizeable expenditures just to bring it up to neighborhood standards.
Here are pointers for buyers considering a home that’s vacant:
Seek out information on a home’s former occupants.
It’s tough to gain details on a house that’s been vacant for months because its owners moved away to take a job transfer. It’s still harder if the empty property has fallen into the ownership of a bank through foreclosure.
“The bank won’t tell you anything. And, frankly, the folks at the bank, or the real-estate agent they’ve hired, probably won’t know much about the people who lived there,” Ottwein says, adding that your best sources are often neighbors.
Most people who must leave due to foreclosure don’t deliberately damage their home. Still, their financial problems could mean they lacked money for crucial maintenance chores during their tenure in the property, he says.
Consider a “pre-inspection” of a vacant place.
Perhaps the property you like has gone unsold for so long that you’re nervous about hidden defects. In fact, you don’t even want to make an offer until you know more. In such cases, Ottwein advises you to consider hiring a home inspector to take a preliminary look.
One of his clients, an Air Force colonel who wanted to learn more about a handsome rambler that had gone vacant nine months before he spotted it. The house was listed at $50,000 below other comparable homes in the same neighborhood, and he was suspicious as to the reason.
On his agent’s advice, the colonel spent $200 for a brief home inspection. This revealed that the house had a serious crack in its foundation. Consequently, he walked away from the property and bought a two-story place in the same neighborhood that proved a better choice, even though it was marked $30,000 higher.
What are the advantages of hiring a home inspector to check a property before you’ve submitted your bid?
“If you decide to go through with the purchase, a pre-inspection will let you set your bid based on findings from the inspection. If you decide to back out of the deal you can walk away without complications,” Ottwein says.
Make sure the utilities are on when the inspection is done.
As Helfant points out, cost-conscious banks that own foreclosed property often shut off utility service to the vacant homes they own, including gas, electric and water. But lack of utility service poses a challenge to home inspectors.
“It’s useless to do an inspection when the utilities are off. You can’t tell if the cooling, heating and plumbing are functioning correctly,” she says.
Helfant strongly recommends that buyers always have a home inspection on a vacant property – if not before their bid is submitted, then after. And even if you have to pay to get utility service restored, she says it’s worth the expense.
Double-check your bid before making a final offer on a vacant home.
“Before you shape your offer, you and your agent should take a careful look at the recent sales history in your neighborhood. These days you have to be extra vigilant to avoid overpaying,” Ottwein says.
Ideally, you’ll want to examine at least three similar properties that have sold in the immediate area in the past three to six months – adjusting for differences, such as a larger garage or a second fireplace.
Although you’ll want to take a home’s condition into account when judging its market value, Ottwein cautions against seeking out-of-proportion discounts to compensate for superficial shortcomings.
“So what if the owners took the lightbulbs with them when they had to move or if they painted the walls in a color you don’t like? Don’t get emotional about these small issues,” he says.
Be on the lookout for sizable savings.
In the past, many banks insisted on unrealistically high prices for their properties. Yet recently, as inventories have swelled, Helfant says more are slashing prices.
“Banks don’t like to negotiate. But these days their starting-point prices can be extremely aggressive – even for houses in great neighborhoods,” she says.
She urges homebuyers and their agents to stay alert to the possibility that bank-owned homes could appear on the Multiple Listing Service at rock bottom prices.
“You have to act quickly to get one of these bank-owned houses offered at a dramatic discount. We’re even starting to see multiple offers on houses in great neighborhoods that are priced at 20 to 30 percent below their market value,” Helfant says.