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Common Mistakes and Pitfalls For Foreclosed-Home Buying

By Nick Bert II

Buying a home can be an enjoyable and rewarding experience, and for most people their home will serve as their single largest investment. If you're in the market for a home right now then you probably already know that foreclosures are whats hot right now. Foreclosures often look like every other home, but costs tens of thousands of dollars less. Choosing this type of property will undoubtedly save you some money. As with any home purchase there will be some costs. But these costs can be much greater for the buyer who doesn't take a minute to plan ahead. Most unprepared buyers are likely fall victim to at least some of these buyer traps:

Overspending on the home they want, or

Handing their dream home over to a more prepared buyer or,

(even worse) purchasing a home that won't meet their needs.

Using a more systematized approach to the home buying process will help you steer clear of these common traps and allow you to cut costs and secure a home that meets your needs. Stay with me as I discuss the 6 most common and costly home buyer pitfalls and how to avoid them.

1. Bidding Blind. How much should you offer the seller for their home? To answer this question you'll need to first determine if the asking price is too high or if it's already a great deal. Even in the toughest markets underpriced homes will see multiple offers. But you also don't want to over pay either, so you must do some research. Certain websites or an experienced Realtor can provide you with a list of recent area home sales. The key is to know what homes are selling for. Try to avoid using active listings as comparables. There is an epidemic of people listing homes for sale that they actually don't have the authority to sell at that price. These homes have a 1 in 4 chance of closing and because of this they are priced unrealistically low. By studying recent home sales, you can get a more realistic number.

2. Buying the Wrong Home. What requirements do you have for your next home? This is a seemingly simple question that can provide a very complex set of answers. Its not unheard of to hear of a homeowner who's purchased a home that doesn't exactly meet their needs. People see a home with all the cosmetic features they want and a price that can't be beat, and they sometimes overlook their more basic needs. Take some time to create a list of your wants and needs; keep this list by your side as you search for a home. Treat this list like a yardstick that you will use to measure all homes.

3. Unclear Title. Make sure early on in the purchasing process that you will own your home free and clear by conducting a title search. Even if it's customary in your area, not all Foreclosure Sellers will pay for this, so be careful. The last thing you want at the end of a transaction is find out that your new home is subject to encumbrances such easements, leases, undisclosed owners or tax liens.

4. Not Getting Mortgage Pre approval. Getting pre-approved is easy, only takes a minute, and costs you nothing. This is a step you can't afford to skip in today's market. If you've started looking for a home already then you probably already know that Bank Owned Properties, and Government Foreclosure are the best deals available. These types of Sellers require pre-approval letters to be submitted with all offers. Homes priced $15-20K below market value will often see multiple offers. If your dream home sees multiple offers you wont want to lose it to another buyer over something as simple to get as a pre-approval letter.

5. Contract Misses. The Government and Banks are overloaded with foreclosures right now. One of the things they do to help lighten their load is to kick back any offers containing errors. Miss and initial, or forget to sign in blue ink, and a deal could be lost. To help you navigate this difficult and often tedious process, I suggest hiring a Realtor with foreclosure experience. And since most Buyers Agents will charge you nothing for this service, there really is no reason not to. Even with the help of an experienced agent, its still a good idea to check your purchase agreement for missing initials, or incomplete fields. Remember that multiple offers are common with foreclosures, and an error in a contract can lead to the sellers selecting another offer.

6. Undisclosed Fix-ups. These are possible in any type of home purchase, but are more likely to occur with foreclosure properties. The reason is that the Sellers of these types of homes were not the ones who were living in the home. They probably won't know if any work was done, or if it was done with a permit. Certain types of updating must be done with a permit, and inspected. If this doesn't happen, the city or county could require you to have this work redone with a permit and then inspected. This can be expensive, and since these homes are sold as-is, it would be at your expense. In these situations you may not be allowed to inhabit the home until all work is done and inspected. To avoid this, have your home inspected, and if work has been done, check with the county to see if a permit was recorded. Not all work requires a permit, so consult with your home inspector first.

To assure a worry free transaction, take a little time upfront and do a little preparation. Create a list of your wants and needs and research recent home sales. Speak with a lender and get pre-approved. Double check your purchase and sale agreement for errors, perform a title search, and always get a home inspection. Foreclosures can be a little bit more work, but they can also save you tens of thousands of dollars. A Realtor experienced in Foreclosures can help simplify the process and often will not charge you for their services.

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