Watch Out When Buying a Foreclosure/Bank Owned Home! 8 Things to Watch Out For!

hey welcome to the channel today we're talking about the 8 top things to watch out for when you're buying a foreclosure first let me say that when I'm talking about a foreclosure in this instance I'm talking about a bank owned property or a REO this is a property that's already been foreclosed on and is owned by the bank buying a actual foreclosure from the county steps that auction is a whole different thing and if you guys are interested I'll do another video on that at a later date when you're looking to buy a bank owned property the things that you want to look out for are a little bit different than if you're buying a house from a private seller none of these issues are deal-breakers I don't want to discourage anyone from buying a foreclosure because they are actually a good deal for the right person in the right situation the first thing to look out for is that the bank is not going to provide you any seller disclosure or basically any information normally the bank is not going to tell you how old the roof is the water heater the HVAC system if there's foundation problems or if there's leaks they're not going to tell you any of this information because they don't know about it they know very little about the actual property not having the disclosure isn't a huge deal but it does help to know how old the roof is and have some information about the house before you buy it but it's not really a big deal the second thing to look out for is that a lot of times the bank will require a high escrow deposit when you're putting in your offer a lot of banks at least in my area asked for higher deposits than normal sellers would ask for and I believe this is to make sure that you actually close on the house and also we'll get into they're really looking for cash deals so they want to see that you have a lot of money to be able to actually closed and so if you don't have a lot of money for a down payment or a lot of cash on hand this can be an issue number three is that banks do not like contingencies they don't like mortgage contingencies and they definitely don't like repair contingencies so if you're putting an offer on a bank-owned property you might not have a repair contingency or you might not be able to get a mortgage contingency which means you can lose that high escrow deposit if you end up not closing and if you're actually getting a mortgage this can be a deal breaker because you really don't want to enter into a situation where if for whatever reason you're not able to get a mortgage that you would lose your escrow deposit and that leads us to issue number four where it's difficult to get a traditional mortgage on a bank owned property they normally need a lot of work and if you're you especially if you're using FHA or a VA loan it's really tough to pass the FHA or a VA appraisal and so if repairs are needed you would actually probably end up having to do them yourself before you close on the house and I really never recommend that because so many things can go wrong you spend time fixing up someone else's house that you don't even own and then you just lose that money because you end up not being able to close anyway I'd stay away from that type of situation not all bank owned properties are in this category but the majority of them are a lot of first-time homebuyers think that you know they can just use their FHA or VA loan and and buy a house that needs work and then fix it up which is a smart idea but in practice it's very very difficult to close on any house that needs repairs and most of these bank owned properties are in crappy condition and that leaves us to issue number five is that the banks aren't gonna make repairs it's funny I've actually negotiated where a bank actually did make repairs to close on a house but that is very rare and actually blew me away that they agreed to do it most of the time the bank is gonna say screw you I'm not doing anything either buy the house the way it is or kick rocks number six is watch out for amended sales contracts a lot of times banks will have their own addendums to the reminisce sale and they basically wipe out all the standard agreement of sale verbage and it puts everything in the bank's favor as far as the contract and a lot of people will just sign this stuff but as an agent when I look at this I get concerned a lot of times because it takes a lot of the buyers rights and abilities away and I just want to put that out there for people especially first-time homebuyers you really lose a lot of leverage when you're buying a foreclosure because the banks they just don't really care if they have a bunch of properties they have a bunch of money and you would think they would want to sell the house and get rid of it because they're losing money but they really don't care at least for my perspective that's what it seems like and I do a lot of bank owned stuff so it is what it is number seven negotiating with the bank is like negotiating with a crazy person most of the time sometimes they they have good asset managers and they make sense but a lot of times these banks don't know anything about the property they don't know anything about the area they don't know what the pricing should be and the house could be falling down and they could be over pricing it or they could list it really low and then cause a lot of bids that go in so you never know what you're going to get when you're negotiating with the bank when you're buying a foreclosure it helps to have an agent that really knows the value in the area and understands rehab costs because then you're gonna want to make sure that they give you a good CMA or a comparative market analysis on that property to know if you're offering a good amount or too much or too low because whatever the list price is I want to pay any attention to that also banks counter in funny ways sometimes they won't counter or they could respond by saying give us your highest and best offer and basically they want you to bid against yourself and they'll say that they have multiple offers you don't know if these offers are really low offers and yours it's the highest or if you're low it's really tough to figure out because they really won't tell you any information when you're dealing with another agent and normal transaction you can try to feel them out and see where they are but with the bank you never know and that's not to say you can't read into things especially as an agent that deals with a lot of bank owned properties I can't read into it but at the end of the day it's still a bit random and the last thing to look out for is that if you're using a mortgage you're going to be at a big advantage to anyone offering cash this is normal with everything but even more with foreclosures the bank is gonna want to take a cash offer a lot faster than they're gonna want to take your mortgage contingency or even they might not even allow you to have the contingency so it makes it really difficult to be competitive in the marketplace if you're offering $100,000 and a cash buyers offer 90 a lot of times the bank will take that $90,000 offer now there are special programs where if you're going to be occupying the property you actually get preference over an investor so sometimes it can work to your advantage but most of the time it's really not good generally and overall using a mortgage to buy a foreclosure unless it's in really good condition is really tough it's really difficult I don't really recommend it unless you really know what you're doing or where there's no inventory and you have good connections to get houses fixed up and you're willing to take the risk of losing a high escrow deposit and kind of you know roll with the punches as far as contingencies and other issues but for the regular person just buying a house I would steer away from buying a foreclosure unless you're willing to deal with all of these things and again I think buying a foreclosure is actually a really good thing to do financially but just understand all the complications and issues and risks involved and you'll be fine so that's all I got guys hopefully this information was helpful as always I pride myself and my accessibility if you have questions you can reach out to me directly my information is in the description box how many of you guys out there are thinking about buying a foreclosure what are you concerned about what are your questions put it in the comments let's have a discussion thanks guys buh-bye

Channel: Ryan Fagan

Views: 41,693

Keywords: Ryan Fagan, Fagan-Carnation REALTORS, Biggerpockets, real estate investing, house flipping, real estate, first time homebuyer, new jersey, down payment, down payment assistance, foreclosure, hgtv, house hunters, ryan serhant, Grant Cardone, Boyce Watkins, real estate agent, realtor, ryan pineda, philly real estate, burlington township, philadelphia real estate, foreclosures, how to buy a foreclosure, foreclosure investing, foreclosure real estate, foreclosure homes

Id: RQFuhDUK0P0

Length: 8min 31sec (511 seconds)

Published: Mon Apr 29 2019