Foreclosured Homes, Inspections, and You!

Many real estate agents will recommend that a seller obtain inspections on their home prior to listing the home for sale.  “Why should I get an inspection? Once we know what needs to be repaired we will have to fix it.”  Well, that is one way to look at it. There are other things to think about.  First, knowing the repairs ahead of time and completing them, places your home in the best possible position to earn top dollar.  Well maintained homes are more likely to receive the higher price compared to a home where maintenance has been avoided.

Second, If you as the seller accepted a low offer and then have to negotiate repairs mid-stream it can be more costly and discouraging.  If you, as the buyer offered a high price and then find out mid-stream the seller does not want to negotiate the cost of repairs, the deal can become quite frustrating very quickly.  A well maintained home can prevent these issues and the stress of the contract is reduced.

So what happens when you are looking at a foreclosed property for sale?  Short sales, REOs, “bank owned”, “corporate owned” properties rarely have inspections available for the buyer to review.  As a buyer, many agents will say you are “on your own” to obtain inspections.  Distressed homes are sold “AS-IS”.  This means that the seller does not intend to make any repairs and therefore    the buyer should make the offer subject to the property’s current condition.

Inspections can be costly.  Once a buyer has written     checks for a home inspection ($300-$500), roof inspection ($125-$150), chimney inspection ($125-$150), pest inspection ($150-$175), it is hard to turn back on the deal.  If you cancel the contract due to repairs, you are out the inspection money.  If you move forward with the contract you may be able to have your agent negotiate a credit but most distressed property contract addenda have redundant paragraphs indicating the buyer agrees to “AS IS” condition.

As a buyer, you might ask, “Do I need all these inspections?”.  Even in the worse case scenario where a foundation inspection is necessary ($600-$3000), a buyer might end up spending $1000 to $4000 on inspections.  Realizing that the median home price in San Jose is $580,500 we are talking less than 1/2% cost on a major life investment.  Is it worth spending $4000 on a half-a-million dollar investment that will be your primary home?  Only if you are sure a foreclosed home presents the right deal at the right time.  Remember, most private sellers (not bank owned/corporate owned seller) will negotiate repairs and sometimes (particularly in a “buyer’s market”)  they are willing to share the cost of inspections.  The foreclosure has to be a very good deal for this to all work out well.

But there are ways to reduce your cost on inspections without throwing away the security of knowing the condition of the home.  Even with a foreclosed or short sale property.

For wood destroying pest reports, the Structural Pest Control Board for the State of California maintains copy of any reports completed on a property for two years.  Therefore, a buyer can look up the address and see if any previous reports have been completed and request a copy.  For free.  The state of California states that a pest report is good for 120 days. (Remember, left untreated, termites keep eating.) If the report is under 120 days, ask for the original company to come out and update the report.  This is your first opportunity to reduce inspection costs.  If you want to learn more about Northern California termites and the costs associated with repairs call Will McCoy at Terminators.

Secondly, a home inspector can help shed the light on suspicious areas requiring further investigation by specific professionals.  For example, damp crawl spaces with effervescence can imply a foundation inspection   is needed.  Missing roof tiles or damaged shingles can indicate the need for a roof inspection.  Cracks noted in the chimney can imply a complete chimney inspection would be a good idea.  I always recommend my clients be there for inspections.  You can ask questions and learn a great deal.

Finally, your real estate agent has looked at a lot of houses and should have a good eye for suspicious items.  I am not an inspector but I can certainly point out areas that stick out as potential issues.  I always recommend, at minimum, a home inspection and pest inspection on any home I represent.  In my opinion $300 -$500 is well worth a client’s peace of mind.

If you would like to discuss strategies to minimize your inspection cost or would like recommendations for inspectors and/or repair professionals, contact me.  Expanding your knowledge is the best investment on any home purchase.

Tags: , , , ,

3 Replies

Trackback  •  Comments RSS

  1. This has been really interesting but how do I bookmark this? I tried Digg but do I have to sign up first?

  2. Yes you most certainly have to sign up on Digg first before you can post it.

  3. You could also try stumbleupon, I don’t think they require an account.

Top