Many buyers feel they are getting a steal buying a property under power of sale, but is it really that good a deal? The following are some things to consider before deciding to put an offer on a bank owned property.
Often times buyers expect the listing price to be greatly reduced. However, the bank/lender is obligated by law to get market value for the property. So, if similar homes in the neighbourhood are selling for $500,000, the listing price should be around that amount, all things being equal.
However, the condition of the property is usually poor. When reading through real estate classified ads have you ever noticed a property being sold in “as is” condition? This is usually an indication work is required and that the bank is basically saying “take it or leave it”. While you can ensure any offer you submit is conditional on your satisfaction with a home inspection, it may take you out of the running in a multiple offer situation. Since buyer perception is that a power of sale property is a great deal, multiple offers are often received thereby driving up the selling price. It is important to keep your emotions in check and to not get caught up in the frenzy. Offer what you think the property is worth and be prepared to walk away if necessary.
As an aside, many years ago neighbours of mine lost their home to the bank. While I can’t say I knew them well, I was surprised to see they had ripped out and taken the central air conditioning unit and had done some major damage to their two storey deck. These were not bad people, but stressful, life-altering events can cause us to make poor decisions.
The bank may give the owner the opportunity to bring the mortgage back into good standing before the deal closes. Great for the homeowner, not so great for the buyer. The consequences of this could be huge, depending on your living arrangements at the time of purchase. Have a backup plan in place in case the deal falls through.
Finally, don’t expect any appliances to be included in the purchase price. If the bank doesn’t own them, you probably won’t get them! This coupled with the fact properties often have significant damage to walls, doors, windows, you name it and any money that might have been saved will instead have to be spent on repairs. Keep in mind the cost to replace appliances and make repairs to damaged items when submitting an offer. It could make a significant difference to your bottom line.
As always, do your homework and ask your real estate agent for advice before purchasing a home under power of sale. You may not be getting the deal you expected!
When you’re ready to buy or sell in the Burlington or Oakville area, or for general real estate advice, please contact me. I can help!