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Foreclosures and Safety

Caution - Foreclosure!

This past week I’ve been in many different foreclosures with my clients.  Some bank owned homes are in turn-key (aka mint) condition and are wonderful.  Others are…. how do I say this…. crap.  Many are simple run down and need repairs, cleaning and updating.  Many more though are safety hazards in their current form.  I’ve seen frozen houses (pipes burst creating icy stairs, floors, etc.) mold houses (where a wall of mold spores hits you when you step into a room) loose electrical wires, broken steps, rotted/loose flooring, and more.

From the moment I walk out of the car to the second I open the front door I am looking at general condition and evaluating the shoes on/shoes off policy… in houses in good condition with clean flooring we take shoes off, in houses where the condition and cleanliness are not good, we keep shoes on.  Often the house appears relatively clean but the stink is so bad that you are gagging through much of the house. Sometimes I’m tricked into thinking the house is good until we get part way into the home and I step on something nasty or we see something we need to get at in a dirty area and go back for the shoes.

I still do not understand why banks won’t do more basic repairs to the house.  I think that in some cases the banks don’t know enough about the condition or have not been counseled on making repairs.  In most cases the bank has not seen the property and is relying on the advice of others (or their fancy spreadsheets that give them all the answers using formulas that have nothing to do with reality). Often new carpet and paint will go a long way… and in other cases that isn’t nearly enough.

Today I’d say 90% of 1st time buyers are using FHA or VA financing, which both have higher property condition standards than Conventional, though the gap in requirements in continuing to decrease.  I estimate about 1/3 of the foreclosures out there are so bad that they either require Cash or Rehab Financing to purchase…. which dramatically reduces the potential buyer pool and in the case of Rehab Financing (FHA 203k is an example), it can substantially increase the borrowing costs due to the higher interest rate on these products.

Due to these issues, many foreclosures are selling for far less than they could with basic to moderate repairs… obviously the banks don’t want to start projects that could become a Money Pit but in many cases they are taking 2x – 3x the financial hit to sell it “as-is” versus making the repairs.  As my friend and fellow Realtor blogger Teresa Boardman says: “Banks can’t sell real estate.”

So if you are touring bank owned homes, PLEASE WATCH YOUR STEP!

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TwinCitiesRealEstateBlog.com is not a Multiple Listing Service MLS, nor does it offer MLS access.
This website is a service of Aaron Dickinson of Edina Realty, a broker Participant of the Regional Multiple Listing Service of Minnesota, Inc.