You’re a real estate investor who wants to buy foreclosed homes from the Department of Housing and Urban Development (HUD). The organization lists the homes as-is and will not make any repairs.
You drove by the homes and saw the exterior. But you didn’t see the interiors. You take the risk of purchasing the homes. You thought about foreclosure inspections, but you wanted to buy sooner rather than later.
Over time, your property manager notes various repairs that are necessary to make the homes liveable. They’re large repairs in the form of plumbing and electrical work.
And, the homes have missing appliances. All of these repairs will eat into your profit margins.
Where did you go wrong?
In this case, the real estate investor failed to get a foreclosure inspection. Foreclosure inspections provide a thorough understanding of a home’s true condition. The inspector can find underlying damage and repairs that could incur heavy costs to the buyer.
This article will explain why the home inspection process is vital before purchasing a foreclosed home. Let’s explore.
How Much Does a Home Inspection Cost?
The average cost of a home can vary between $200 to $400. However, you could pay below $200, depending on the home location and the home size. Or, you could pay over $400 for larger homes.
The cost of inspection results in long-term savings. For instance, a $300 inspection on a home that’s structurally deficient can spare you the trouble of buying it.
How Long Does it Take for a Home Inspection Process to Finish?
Home inspection sessions will vary, but the process normally takes between two to four hours. Larger homes may take longer to inspect. Additionally, other factors such as excessive wear or missing components may lengthen the inspection time.
Further, the process depends on the owner’s willingness to cooperate with the inspection. For example, you may encounter delays if the owner fails to turn on the utilities within a suitable timeframe.
Moreover, the inspection interval also depends on the inspector’s discretion. A detail-oriented inspector may take longer to inspect a home.
What is the Inspector Looking For?
During the run-through, the inspector will search for red flags in the form of code violations or safety concerns. The inspector will review the following parts of a home:
- AC system
- Heating system
Overall, they will search for anything that may cause the buyer a great deal of money. And, examiners will search for missing components of a home, such as handrails or appliances. From there, they will write a full report for your consumption.
The report will include details that you would not have known about the property. For instance, the report could list drywall damage or rotted wood throughout the house.
After reading the report, you can decide if you want to purchase the home. If you’re an investor, you can also disclose an accurate profile of the home to potential buyers. Full disclosure can protect you from liability.
Moreover, a home inspection can help you plan ahead by establishing budgets for maintenance/repairs. Or, you could negotiate with the seller regarding the repairs before purchasing the home.
How Can a Foreclosure Inspection Help Me During the Negotiation Process?
An inspection report allows you to make repair requests for specific items.
If a seller is open for negotiation, you can ask for a seller credit. A seller credit occurs when the owner issues a lump sum to the buyer for the necessary repairs.
You can also ask the seller to pay for the repairs upfront. However, the seller may hire cheap contractors that may complete the repairs haphazardly. Therefore, seller credits are a better option.
An inspection report can help you make seller requests for larger issues, such as plumbing or electric faults. Or, you can use the report to ask for minor repair requests if the home is in good condition, allowing you to save money on minor upgrades.
And, an inspection report can help you get out of a contract if the home is unfit for occupation. For instance, you can include a clause in a purchase agreement noting the cancelation of the transaction if the inspection lists a major issue with the property.
Do I Have to Fix Everything on a Home Inspection?
In some cases, you may have to pay for the repairs if you decide to purchase the property. The following foreclosure properties are almost always sold as-is:
- Real Estate Owned (REO)
- Tax-foreclosure properties
- Homes owned by the federal government
When it comes to federal foreclosures, HUD is an agency that never volunteers to repair inventory homes.
If you’re interested in a HUD home, you must pay for the home inspection yourself. Moreover, you cannot cancel a bid if the home inspection doesn’t swing in your favor.
With that, HUD and REO homes are typically open for inspection.
You can order an inspection report, but lenders usually don’t like the idea of a purchase that’s contingent upon inspection.
Bank-owned foreclosures, however, usually allow buyers to inspect the home before buying it. A home inspection can prevent the purchase of a bank-owned foreclosure that requires too many repairs.
What are Things that Fail a Home Inspection?
There are no specific items that will cause a home to fail a home inspection. The inspector’s job is to note the current state of the home.
They will record minor and major repairs/replacements that are needed for the property. After inspection, the client can decide whether to proceed with the transaction.
A home inspection process is not an appraisal, which assesses the overall value of the home. And, the home inspection will not verify code compliance requirements.
How Can Foreclosure Inspections Ensure that I Get the Best Deal?
Foreclosure inspections can help you make better decisions. The report allows you to make detailed repair requests that a seller may be willing to fix. If an owner is unwilling to fix the home, a foreclosure inspection will help you determine if the home is worth the purchase.
Are you interested in purchasing a foreclosed home? Click here to learn why an inspection report will benefit your real estate dealings.