Today, I found a real estate article by ILYCE R. GLINK AND SAMUEL J. at the Washington Post concerning the need for buyers to be careful when considering the purchase of a bank-owned property. The information is timely; as there seems to be a sense of entitlement and expectation among banks that believe buyers should pay close to market price for properties requiring significant rehab work and/or serious environmental remediation like mold, asbestos, lead paint, etc. The way banks have been, they would prefer to transfer some or all of their losses to a buyer, if they could. Bank REO departments would not be doing their job if they did not try to do this. However, there is a line that often gets crossed where it concerns fixers that require a significant amount of repairs. This article is right on point by warning buyers to beware when considering bank-owned foreclosures by pointing out that when homes sit vacant for a long time, this is the time when new problems can develop. Mold is one problem common to vacant homes in regions where there is a lot of rain. Mold can be a costly problem; especially when there is a bad roof, or if water is seeping through the walls into house. These things are not always visible, but a certified inspection report can alert you to the need for a more specialized inspection.
When there are severe problems, these problems should be accounted for in the sales price; otherwise, there is a risk of overpaying on account of significant rehab costs, and resulting interest expense. The result of overpaying for properties is–at best–a break even scenario; or it can mean the assumption of a portion of the banks’ losses. Proper investment fundamentals say that an investor should earn more of a return for the increased risks taken. Some fixers are higher risk than others; especially environmental issues that require the investor to deconstruct a house to the frame in order to treat and eradicate a serious mold problem.
“When you buy a bank owned property, you take risks. The bank has not lived in the home and the bank doesn’t have knowledge about the home’s history. You, as the buyer, must take extra care when buying a foreclosed home” (Glink and Tamkin, 2013).