Dayton, Foreclosures, and Caveat Emptor!

Dayton is the second-best metro area in the nation for good deals on foreclosures. You probably saw that news and for some buyers that will be good news, but only if you are prepared.

Foreclosures are a different beast than buying a home via a traditional home seller so if you are looking at these homes, here are a few tips to make your Dayton home-buying experience more productive, your real estate agent can give you details.

Foreclosures are popular right now and that means you need to plan ahead. These homes can sell in a matter of days, and often sell with multiple offers involved. If you are going to look for foreclosures, know the neighborhood you want, have your finances in order, and let your Realtor know your plans. She can set you, and/or herself, up in the Dayton Area Board of Realtors MLS system to receive email alerts when any property that meets your criteria comes on the market. You will know within hours of it hitting the MLS that a home is available. Be prepared to move quickly on the best homes and discuss with your Realtor ahead of time how you are going to craft on offer. Keep in mind that the best homes end up in a multiple offer situation in which case you will be asked for a “highest and best” offer, so have some idea of what your highest and best offer would be so you can respond to the bank in a timely manner.

One thing to keep in mind is that the seller- the bank- is very much like the Honey Badger in that Bank Don’t Care! This is strictly a business transaction, it’s all about the money, but by clearly understanding that the bank is concerned with their bottom line, you can make them an offer they can’t refuse.  How do you do that? Glad you asked!

Cash is king. If you can pay cash for a home your offer stands a better chance of being accepted. Many transactions fall apart because in the end the buyer can’t get financed for some reason or the other and financing a home typically takes 30 days or more, whereas most cash sales can close within two weeks. Banks know this and if two offers come in exactly the same except one is cash and one is financed, they are probably going to take the cash offer- wouldn’t you? If you are financing a home, make sure you have your finances in order before you submit a bid, and that your loan will work with foreclosed homes. Many loans require extensive inspections and foreclosed homes may not pass. Discuss these details with your lender and Realtor ahead of time so you all know what type of home you can purchase.

One of the things you might choose to do is to remove inspection contingencies. Not a good choice for the novice or inexperienced home buyer, but when you make an offer on a home, you have the option to get inspections done. Inspections are a very good idea, highly recommended, but if you are familiar with construction and understand what you looking at, you might choose to forego inspections. Many foreclosures will have all utilities turned off so you will not get a chance to test plumbing or electric, furnace and air conditioning. It’s crucial to be knowledgeable under these circumstances. If you do have inspections, you may have to pay to have the utilities turned on so be prepared.

Not asking a seller to pay your closing costs is a common way to boost the strength of your offer as well, as is being able to close as soon as possible.

What can you expect from a foreclosed home? Deferred maintenance. If someone cannot pay their mortgage, they are typically not in a position to make repairs on the home. Also, these homes could be left vacant for years before they are on the market. They may have had pipes burst, they may have had animals loose in them, the copper might be stripped, appliances will probably not come with the home, the furnace and air conditioner might be missing. Broken windows are not unusual, and if it has sat vacant for awhile, the water meter might have been removed by the county and someone has to pay to get it replaced- likely, that someone is you.

Cosmetically, foreclosures tend to fall into two categories, either the home needs work- carpet, paint, new cabinets and fixtures, or, the home had some serious issues and the bank has paid for cheap fixes and cover-ups. If it looks too good to be true, it probably is, and there is always something unexpected that needs repair so make sure you have cash on hand for that.

Be prepared to sign reams of paperwork and disclosures, be prepared to act quickly, make sure you and your Realtor are signing everything that needs to be signed, and are submitting the offer in the manner requested- very crucial. If you have a doubt about either the process or the home, back away, think about it, and if necessary, move on. Know your limits, and share those with your Realtor so you do not get caught up in an unnecessary bidding war. It’s a good idea to keep looking at homes while you wait for the bank to respond to your offer. That can help you keep things in perspective, and you can quickly move on to another property if you lose the bid.

Foreclosures are not for everyone. They require cash reserves, knowledge, patience, flexibility, and preparation. If you are thinking at all about purchasing a foreclosure, discuss the pros and cons with your Realtor, ask if she might show you a few so you get an idea of what you are in for, and most importantly, be absolutely honest with yourself about your skills, experience, knowledge, and finances.  Dayton is a great place to buy foreclosures, but only if you know what you are doing.