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Getting a Good Deal with a Foreclosure is Harder than you Think

Sep 12, 2008
This is an excerpt from a typical AS IS addendum: "...buyer is not relying on seller, or its agents, as to the condition or safety of the property and/or any improvements thereon, including, but not limited to, electrical, plumbing, heating, sewage, roof, air conditioning, if any, foundations, soils, and geology, lot size or suitability of the property and/or improvements for particular purposes, or that appliances, if any, plumbing and/or in compliance with any City, County, State and/or Federal statutes, codes or ordinances." And that's just part of one sentence so if you've never taken the time to read through a full AS IS addendum to a real estate contract you'll be able to imagine at least a little bit of what's covered.

The purchase contract of a foreclosed home listing will always involve an AS IS addendum. Most instinctively lean towards foreclosed listings due to their desirable prices, often below market value, but never forget that you'll be signing an AS IS addendum to close the deal. The added addendum makes your purchase more than final. After you sign your documents you are fully responsible for everything related to your new home no matter if it is a new problem or one that obviously has a history longer than your history of ownership.

We've all heard horror stories about home purchases; some are ridiculous, some are rare and some are pretty common. But when it comes to a foreclosed home purchase you've got to take into consideration that the ridiculous, the rare and the common are all included in the AS IS exclusion. It doesn't matter who created the problem initially. It doesn't matter who was aware of the problem. The fact of the matter is that you agreed to purchase the home in its current condition and the sale stands even if the bank was aware that the inspector missed the fact that the concrete tile used for the roof must have been a defective batch resulting in an unexpected roof replacement within a week of moving into your new purchase. The sale stands even if both air conditioning units suddenly stop working 2 days after you move in resulting in $30,000 replacement cost.

It doesn't make a difference if you are absolutely sure that the seller was aware of the problems that are bringing your dreams about your new home down around your ears. It doesn't matter that they specifically misled you prior to signing. It doesn't matter that you suspect that the seller and the seller's agent knew you were buying a home with massive foundation issues or that the agent swore they had turned that AC on in the last month when the AC repairman says it doesn't work and has been out of use at least a year. By signing the AS IS addendum you've closed the deal regardless of hidden issues; sometimes they're so hidden that nobody knows about them and sometimes they're hidden purposefully to get the house sold.

So, while many see the massive number of foreclosure listings as a gift from above as they attempt to get the most home for their dollar...a large portion of those will change their minds after spending big chunks of time and money repairing, replacing and renovating what industry experts could have told them were heavily used, often abused, unkempt properties that offer far too many negative surprises to hold the value offered by their lower price.

It goes without saying that foreclosed homes are generally priced lower than similar, privately owned homes and they can be a great deal, but too many recent home buyers discover too late that the cost of bringing the property up to scratch adds up quickly and leaves them without the deal they were expecting. Jonathan Baer, Montalbano Homes' Sales & Marketing Manager, concludes that buyers "...might get a good deal on a desirable property, but more often then not they won't. Instead they'll get a property that was priced just right or a bit high for the condition it was left in." Foreclosure shoppers need to be aware that foreclosed properties are often stripped of not just the extras, but with a lot of the necessities as well. Lighting fixtures, ceiling fans, appliances, cabinetry, islands, built in bookcases, railing, molding, and even flooring is often missing from foreclosed properties leaving the new owner with a substantial amount of investment required to make the house livable.

And on top of all of that...financing a foreclosed home is far more difficult than financing a privately owned property. Damon Lines, of Amerifirst Mortgage out of Mesa, AZ, said, "There are a lot of reasons why it is more difficult to get a foreclosed home financed in comparison to a privately owned or builder owned home. First is that banks are difficult to deal with. It's a blanket statement, but not many will argue with it. Second, most foreclosed homes are stripped. If the home is in poor condition the financing won't be approved. And third is the FHA 90 day seasoning period requiring previous ownership to extend at least 90 days before FHA financing (the most popular at the moment) can be approved for a new buyer."

Having all the facts in front of you makes the chances of being pleased with your purchase much more likely, but regardless of how thoroughly you examine your options, foreclosed home listings have a higher probability of dissatisfaction after the fact. And when it comes to foreclosed homes-there is no after the fact. The AS IS addendum makes sure of that.
About the Author
Preston R. John is the C.E.O. of Larry John Wright Builder Advertising and Associate Broker of Larry John Wright Real Estate, Inc. For more information visit Montalbano Homes . Or contact Montalbano Homes for up to date information on new build, residential opportunities.
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