Thinking of buying a foreclosed home in the Charleston area? Here is what you need to know.
What exactly is a foreclosed home?
When a home has been foreclosed on and it does not sell at auction, it goes on the market as an REO (real estate owned) property. An REO property is owned by the lender (bank) and listed with a real estate agent.
There are several terms used to describe these homes - REO, bank owned, foreclosed properties.
How is it different than buying a typical property?
- May take slightly longer - When you make an offer on an REO property, it may take a bit longer to negotiate the price because you are dealing with multiple levels of approval. You are not working with a typical seller trying to sell their home but instead working with the bank or in some cases, the investor.
The title process may take longer as well. On occasion the attorney will discover issues with the title which may prolong the process of closing.
Typically the delay associated with buying a foreclosed property here in Charleston is a matter of a few days—not to be confused with the delay when buying a Short Sale, which can take additional months.
- More paperwork - There is always be additional paperwork with a foreclosed home, and if the home is a HomePath home (Fannie May owned home), there is much more paperwork to be completed. Also, most banks will want to use contracts that are different from the standard contracts we use here in Charleston, so you’ll want to review carefully with your agent and also with your attorney. And remember, that the bank’s attorneys wrote the contract they use, so as you’d guess, they are written more favorably to the banks than the standard contract.
- Condition of property is unknown - Since REO homes have been foreclosed on and the original owner is out of the picture, there is no record of updates to the home, previous issues, damages, or repairs. Furthermore, banks are exempt from providing the Seller Condition Disclosure Statement that typical sellers are required to provide. And should you find an issue during your home inspection, you won’t have a seller to tell you about the history of a particular problem or point of interest.
Another thing to keep in mind is that with most REO homes, they have been vacant for some time, which means there is no one living there to keep up on the maintenance of the home - landscaping, cleaning, checking gutters, pipes, etc. The homes may also have their power and water turned off.
And this is especially important here in Charleston, where a home can quickly accumulate mildew and mold (also pests and rodents), when homes aren’t properly maintained.
- Sold As-Is - Most REO properties are sold as-is meaning that the bank will not repair any issues you find during an inspection. The bank does not want to maintain the house, they just want to sell it. However, should you find issues during your inspection period, most REO contracts are written where you’d be able to withdraw from the contract and retain your earnest money deposit. You’ll want to make sure an exit clause is written into the contract, and you’ll especially want to pay attention to the date within which you have the option of withdrawing.
What should I do if I want to buy an REO property here in Charleston?
First, get pre-approved! Most banks will not accept an offer unless you have been pre-approved.
Second, work with a good real estate agent (like one of us here at The Marill Team) to help you determine the best offer to make. A good real estate agent will be able to see what other REO homes have sold for, what comps in the neighborhood have sold for, and help you determine if the REO is a good deal for you and your particular needs.
Third, if you make an offer and it is accepted, make sure you have the home inspected. Since the REO home’s condition is unknown, it is important to know exactly what you are buying and if there are any issues with the home. A good home inspection will catch just about everything you need to be aware of. (However, there are some issues which a home inspection is unable to detect.) You should also get an estimate of the cost of the repairs so you understand how much money you will be investing in the property. This will help you determine if the home is worth the purchase price.