Investing Money, Muscle in a Foreclosure
By Dina ElBoghdady
August 22, 2009
As banks become desperate to offload their foreclosed properties, some are rethinking their take-it-or-leave it policies and are more willing to spend money to make their foreclosures attractive to buyers.
Many homes are in bad shape after a foreclosure. Months of neglect, or even vandalism, by the former owners followed by more months of vacancy can leave serious defects. Even if buyers hire a home inspector, it can be tough to evaluate plumbing and other basics because utilities usually have been shut off. And when a buyer discovers serious defects, banks have usually refused to pay for repairs, insisting that buyers take the home "as-is."
But that approach is changing. Many banks will now do repairs without any nudging from prospective buyers, said Barbara Newcomb, a Century 21 agent in Glen Burnie, Md., who sells foreclosures for several banks.
"The banks are trying to have their homes appeal to more people," Newcomb said. "The reason for this is that the supply of homes on the market is so high. They realize that their foreclosures have to be comparable in condition to non-foreclosures in order to sell."
There are other pragmatic reasons behind the banks' change of heart. A growing share of potential buyers are taking out mortgages insured by the Federal Housing Administration. Homes with extensive mold damage, unsafe balconies or damaged roofs may not meet the FHA's appraisal requirements.
"A lot of banks want to clear FHA appraisal," said Jeffery Shumaker of Ranik Realty in Chantilly, which sells foreclosures. "They're trying to make these homes move-in ready because that's really the largest segment of the market."
Freddie Mac, the giant mortgage financier and owner of roughly 30,000 foreclosures nationwide, is going a step further. It is offering a two-year warranty on the homes it owns to buyers purchasing their primary residence. The warranty, which covers big-ticket items such as appliances, is available to anyone who makes an offer before Oct. 31 and closes the deal by Dec. 31.
But even for buyers who walk into a foreclosure purchase fully aware of the risks, making the home livable can be arduous. Consider the experiences of two people who purchased foreclosures and have spent thousands renovating them. One, Fred Lewis, is a seasoned investor hoping to turn a profit. The other, Josh Whitlow, is a first-time home buyer and a do-it-yourselfer who plans to live in his home for years to come. Whether armed with experience or an abundance of elbow grease, both faced challenges and surprises.
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