Five top tips for buyers looking to purchase repossessed homes
By: Andrew Mitchell
Under the right circumstances, a repossessed property can yield incredible value. Because they are more concerned about recouping losses than making profits on these transactions, banks and other lending institutions are less likely to hold out for top market value than private sellers. However, while the prospect of massive savings (up to 30%, in some cases) on your new mortgage is no doubt immensely appealing, there are a few things you will want to think over and discuss with your broker before making an offer on a repossessed home.
#1: What are you really getting?
A repossessed home seller (banks, financing companies, and mortgage insurance companies) typically will sell the property without any legal warranty, so the buyer is assuming all the risks involved in the transaction. More often than not these sellers will only supply the limited documentation they have on the property, all research, due diligence regarding zoning, the property’s history and any other liens on the property are the buyers’ responsibility. A good real estate broker will be able to provide you a more complete picture of the property and its history.
#2: Remember that the seller is operating under certain constraints.
On very rare occasions, the conditions of sale attached to a repossessed home will actually work against the buyer’s best interests. If, for example, the property was purchased at an exorbitant (i.e. far above fair market value) price by a buyer who promptly defaulted on the mortgage, the bank may not be able to sell it for anything like its true value. This is because lenders are generally trying to set a sale price that is at least equal to the outstanding debt on the mortgage they hold. A good real estate broker will spot this situation immediately and steer you clear of the purchase (unless you become so enamored of the repossessed home that you indicate a willingness to overpay for it).
#3: The home is likely to require a few personal touches.
Property repossession can be an acrimonious affair. That’s not anything for you to be concerned about. The old owners will generally be well out of the picture before the buyer arrives upon the scene. However, you may find that they have left the house in sub-optimal shape. Lighting and bathroom fixtures could be missing. Repairs may have been neglected. Fireplaces and chimneys might require a good deal of attention. In some cases, the seller may agree to adjust the price to account for these considerations. The situation can become more complicated if a tenant is still living in the property. Again, your broker will work to negotiate the best possible arrangement – but even if you do receive financial compensation for these types of issues, you will be responsible for the renovation process yourself. In stark contrast with a private sale, a repossessed home seller will usually expend little or no energy sprucing up the place and enhancing its curb appeal. Of course, this may not make any difference to buyers and investors looking to redo the home.
#4: How do you find repossessed property listings?
This can be a very difficult task indeed for prospective buyers working on their own. Since the imperative with repossession sales is to recoup unpaid mortgage balances as quickly as possible, these homes are often sold and off the market before most buyers ever hear about them. However, with the right broker on your side, you can count on getting a crack at making an offer on the best repossessed home deals in the Montreal region. By bringing a real estate broker into your home buying search, you can gain access to crucial listings that simply will not appear on websites or other property search systems before they are already have multiple offers on them. A good real estate broker experienced in dealing with repossessed properties will now how to structure your offer to make it stand out amongst often fierce competition for these properties. A good broker will also prepare you ahead of time so that when the great deal hits the market you are ready.
#5: Reconnection costs and possible complications of long-term vacancy.
When you first visit a private sale home, you will generally see the property at its absolute best. The seller’s real estate broker will have taken special care to “stage” the home in a way that is designed to engage the buyer’s imagination. Repossessed properties rarely receive this kind of care, because the bank’s main goal is simply to wipe the red ink of bad debt off the books. In keeping with this aim, the seller may not even keep up payments for electricity or other important utilities. This may leave you liable to paying reconnection fees or unpaid bills before moving in – and could even cause problems with plumbing (in a case where no hot water has been running through the pipes for an entire winter). Your broker will know how to broach that topic and obtain the best possible deal for you and your family.
If you are looking for great value in a new real estate property and do not mind dealing with a little initial refurbishing, a repossessed home might suit you perfectly. An experienced real estate broker can be a tremendous help in tracking down these otherwise inaccessible listings. For instance, I can provide you with tailor made reports on all repossessed homes in Quebec that match your stated criteria (price, region, size, etc.). For more information about this service and the other resources I can place at your disposal, I invite you to set up a no-obligation consultation by visiting my website at www.andrewmitchell.ca and click on “Find a home > Repossessions” or for more personalized service call me directly at 514-425-6262 to discuss your requirements.
Andrew Mitchell is a Chartered Real Estate Broker with Vistacor Realty Group, an independent real estate agency serving home sellers and buyers for over 23 years. Thinking about buying or selling real estate? Follow him on Twitter @Montreal_Homes, call him directly at 514-425-6262 or visit his website at www.andrewmitchell.ca.