Foreclosures are more common these days, finding a foreclosed property to buy has become a lot easier than it was during the housing bubble. When home prices were increasing in the double digits annually and anyone could qualify for a mortgage , the supply of foreclosed homes was low. Now the the housing bust has arrived in full force, the supply of California foreclosures, Florida foreclosures and Texas foreclosures has gone through the roof. Foreclosures in other states are not that plentiful as those three states but finding one is still easy in any state.

There are several ways to find a foreclosed property, you can go to an auction, buy directly from a bank, from government entities such as Fannie Mae and Freddie Mac. The Department of Housing and Urban Development has a list of government entities that sell foreclosed homes.

Buying a foreclosure at auction can be risky because you usually have a limited amount of time you can inspect the property, sometimes you can’t inspect it at all. You have to come up with the money to purchase the foreclosure pretty quickly. You also have to bid for the property, which can be exciting but you don’t want to get caught up in the excitement and overpay for the property. Buying a foreclosed property directly from a bank is the best option.

Since foreclosures are so common these days banks are also listing foreclosures on the Realtor Multiple Listing Service (MLS), making the process even easier than contacting individual banks.

Some real estate brokers specialize in foreclosed properties. When you search the MLS for foreclosed homes, look for “Real Estate Owned (REO)”, these are properties owned by banks. Buying REO properties will take longer than buying a home from an individual, so be prepared for a long drawn out process. If you have the time, the savings on a foreclosed home directly from a bank can be substantial.

It’s not uncommon to save 30% to 50% of market price since banks have so many properties on their books they want to unload. The condition of foreclosed properties are a lot better than they have been in the past so finding a foreclosed home in livable condition isn’t hard. If you are buying a foreclosure it’s good to budget for unexpected expenses so factor in having some cash on hand affer your home purchase.

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Once you’ve searched through for a HUD home, and found a listing that meets your criteria, once you’ve secured your financing and are contemplating making an offer, it is time to hire a good home inspector and conduct a thorough home inspection.

A good home inspection typically will include the heating and air conditioning systems, the roof, the attic, insulation, plumbing and electrical systems, the integrity of the walls and ceilings, floors, windows, foundations and basements. Depending on each house, appliances and outdoor plumbing may also be included.

Ask that the home inspector take pictures of anything they find.

Ideally you should be present during the home inspection, walk alongside the home inspector and have him/her describe to you in detail what he/she is finding. You might also choose to conduct the inspection with a contractor, either in lieu of the home inspector or after the home inspector does his/her part. A contractor will likely notice things the home inspector may not notice, as well as present estimates of the repair costs.

Once the inspection is completed you should have a written report of all the findings, as well as photographs, all neatly assembled in a binder.

Now, the first step you’ll have to take once you have the home inspection report will be to decide if you still want to move ahead with the home purchase. This is especially true of REO’s, and even more so if the property has a very low price that is significantly affected by the cost of repairs. Let’s suppose you found a property on sale for just under $20,000. It’s an old home and requires quite a rehab. Once you look at the home inspection report you find that there’s an estimated $10,000 worth of repairs. Well, that’s half-again your investment! Are you still confident that your margins will justify purchasing this home? If the home can be repaired and sold in 90 days for $75,000, then clearly it’s worth the investment. But proceed carefully and make sure that your figures are correct.

Assuming the cost of repairs doesn’t constitute a deal-breaker and you’re moving forward, this is a good time to work with a Buyer Agent to draft up the offer.

In rare cases you may want to submit an offer prior to the home inspection, but if you ever do, you’ll want to write in a contingency clause stating that if the inspector finds $10,000 worth of problems and the seller won’t fix them you can call the thing off.

A good place to look for Home Inspectors is the American Society of Home Inspectors (http://www.ashi.com/).

You should interview several home inspectors prior to choosing one.

Some questions you may want to ask:

·        How long have you been a home inspector?

·        How many homes have you inspected?

·        Can you tell me what the home inspection will cover?

·        Do you specialize in residential or commercial properties?

·        Does the home inspector’s company offer to provide repairs or improvements based on the inspection? (in the case of a contractor the answer woudl be yes – but in the case of a home inspector the answer should invariably be no, as this would be against the Code of Ethics of the ASHI due to conflict of interest.)

·        How long will the inspection take? (It should take a minimum of a couple of hours for the typical one-story single-family home.)

·        How much will the inspection cost? (While costs vary, a range of $250 to $600 is normal.)

·        Ask to see samples of a written report. Ask if the inspector agrees to provide photos (you should have a camera at the ready in case the home inspector does not have one.)

·        Would the home inspector be ok with you partipating in the inspection? (Not only will you learn important details about this particular home, but also about homes and home inspections in general. This is valuable education, especially if you plan on purchasing several properties over time. At any case, a home inspector’s refusal should be interpreted as a bad sign.)

Make sure to get references for the home inspector you are considering. When calling those references, one questions you can ask is whether they found any important flaws in the home after close of escrow that the home inspection had missed.

Be leery of recommendations from realtors. A realtor might be biased toward home inspectors who are easily swayed and who don’t kill deals by exposing negative information about a property. You want a home inspector who is hard-nosed and impartial, and one who will readily inform you of anything that may be wrong with the home.

Remember, even in the case of a large list of repairs, the home inspection results don’t have to mean that the deal is off. It just means you are now in a strong position to go negotiate a lower selling price that will take into account the repairs needed.

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