Talk about a frustrating experience! A beautiful home, destroyed by bitter owners and/or water damage. A great value that you are unable to finance because it’s not considered ‘livable’.
To date, I have looked at almost 40 foreclosed properties from Augusta to Kittery, Maine, with the hope of finding a nice home for a nice price, that’s worth the frustration and work that need to be applied. Unfortunately, is seems that any house meeting even 70% of my expectations, is under contract before I can get an appointment to see it.
The amount of coordinating that it will take to even get a mortgage on a ‘distressed’ property is almost unbelievable. Within 30-45 days, a seller is expected to complete the following;
- Apply for financing – usually within 3 days of finalizing a purchase and sale agreement
- Fix any broken pipes – they all have them!
- Dewinterize the property for proper inspections
- Turn on the electric
- Inspect heating system
- Inspect/test water
- Inspect/test sewer system including any leach field
- Schedule a full home inspection – including mold from the water damage
- Get an appraiser to assess the property – property location can determine how long this takes
- Get the bank to review the appraisal and determine required repairs
- Get estimates for the bank’s required repairs
- Complete any repairs that the bank requires prior to closing – such as mold remediation
- Possibly renegotiate with the seller
- Schedule the closing date
Why bother? Well, if you (or someone you know very well) have the ability to put in some ‘sweat equity’, then generally you can get a foreclosed property for a discount.
How much of a discount would you need to get, for it to be worth the work and aggravation? This depends. You have to determine what your lender will require to be fixed, then determine what you want to fix over and above that. This number should be subtracted from the value of the property, but keep in mind that very few lenders will give 100% of a property’s value. Many will still lend 90% for a purchase, but if you intend to complete any repairs afterward with a home equity loan, then you may only be able to get 80-85% of the property’s value.
How does this translate? If you anticipate a home is worth $150,000, but you will need to invest $20,000 in work, then your offer might look something like this:
$150,000 * 85% = $127,500 is how much a lender might give you for a loan
$127,500 – $20,000 in repairs = $107,500 is the most that you might consider offering for this property
In the end, it all becomes a game of unknown factors. The true value is unknown, the actual amount of work needed is unknown, and you hope for the best.
My Advice (for what it’s worth), make sure you have a good realtor and a great lender! Need recommendations? Contact Me!
