I am an agent with Century 21 All Islands in Kailua-Kona Hawaii who has been actively involved with the foreclosure market for the past three years! Here are the Top 5 items I think buyers should consider when purchasing a foreclosure property after spending time in the trenches.
1) More than likely there will be NO seller disclosure on the properties. This translates into the BUYERS need to practice extra diligence in doing their inspections during the inspection period allowed which may be shorter than they would like. The listing agent likely is not a licensed building inspector or contractor and probably doesn’t know the properties history. The buyer’s agent probably won’t either. This means the buyer needs to hire ALL the inspectors necessary and check out the county’s history of the property.
2) Although the banks will initially request a relatively quick closing, be prepared for delays once escrow is opened. The transfer of title frequently has issues due to a variety of factors and the more properties going into foreclosures means that the more often a step is missed. The bank which foreclosed and recorded title may now be under another name. The property may have additional liens against it. Generally these can be worked out but expect it to take time as everything in a REO (real estate owned) has to go through a SERIES of departments and frequently gets delayed in the process. Even doing a preliminary title search during the pre listing period will not necessarily pop these issues.
3) Be prepared to pay for items you may have come to expect the seller to provide such as HOA documents or surveys. I personally believe that a survey is to the buyer’s benefit and is well worth the money. $2000 is a small amount compared to a half million dollar house that you later discover encroaches on its own boundaries. The worst case scenario is discovering it sits on someone else’s property. In short, don’t quibble over items that are in your best interests to have done.
4) The properties are being sold AS IS. This means you do the inspection and then it will be extremely unlikely the bank will pay for any of the items which come up. Termite inspections are well worth the buyer hiring a reputable company to perform. Check out your contract and see if the Bank/Lender has inserted that they will do treatment if termites are discovered. Your agent may wish to insert that into the purchase agreement. The bank/lender however will probably not replace any damaged items.
5) Please look at traditional seller properties as well. The savvy seller now realizes that their property needs to be in top notch condition to compete with foreclosures and short sales. Frequently this means a lower BOTTOM LINE than the foreclosed property will be after the buyer takes ownership and makes the repairs. Remember TIME is the most valuable commodity in the world and your time and stress involved in bringing these properties up to good condition should also be considered when you consider the cost
Foreclosures are still a strong part of the Hawai’i real estate market. Hawai’i only ranks #15 according to RealtyTrak in January. The site also reports that 5 states amazingly accounted for 50% of all the foreclosures nationally in January 2011. The Top 5 States in order were California which accounted (25% of all foreclosures in January 2011) Florida, Michigan, Arizona and Nevada.
According to Pacific Business News, Hawaii also ranked 15th in the nation in July 2009. For a bit of historical perspective, in April 2008 Hawai’i ranked 48th.
Currently the number of properties going into contract is dramatically increasing with multiple offers placed on choice real estate during the past months. The Big Island market is without question, picking up steam. The residential market overall has picked up nearly 21% in the first quarter 2011 over first quarter 2010. A nice change from the big inventory high point of first quarter 2009
The best silver lining in this cloudy real estate market is that home prices are still great and that we are seeing cash buyers come into the market to purchase. Median price has gone down just a bit over 5% in the past year, which demonstrates a big reduction in the downward slope of the trend from previous years.
Feel free to email me at email@example.com with any further questions.