Should you buy a home that's been vacant?
It may seem like a great deal, but be aware of possible expensive repairs lurking inside.
A for-sale house that's been vacant may look like a bargain, but buyers should be cautious, because expensive problems often lurk inside homes that have been unoccupied for some time.
A home can become vacant due to a marriage, job relocation, death or other life event. But vacancies today are more often due to a bank foreclosure or short sale in which the lender accepts less than the mortgage balance. It's these bank-owned properties — sometimes called "real estate-owned," or REOs — that tend to be "problem homes," says David Tamny, owner of Professional Property Inspection in Columbus, Ohio, and 2010 president of the American Society of Home Inspectors in Des Plaines, Ill.
Vacant homes can suffer from a wide variety of ills due to neglect, deferred maintenance on the part of the previous cash-strapped homeowner, and vandalism, Tamny explains. Broken water pipes, stolen copper wiring, damaged appliances and mold are but a few examples of the potential problems that may await buyers of these homes.
The risks for buyers are front and center since the number and percentage of vacant for-sale homes has increased during the housing slump. More than 2.2 million for-sale houses in the U.S. were vacant in 2008, according to the U.S. Census Bureau. That figure was more than double the 1 million vacant for-sale homes in 2000. Vacant homes exist throughout the country, but the percentage of vacancies in 2008 was higher than the national average in the South, Midwest and West, and lower in the Northeast.
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Turned-off utilities limit home inspection
Homebuyers typically hire a professional to conduct a visual inspection of the home and prepare a report on its condition. That's a wise precaution, but not even a well-qualified and thorough home inspector can see inside walls. Nor can an inspector assess the condition of a home's plumbing, electrical wiring, heating-and-cooling system or major appliances if the water, gas or electricity has been shut off.
"Buyers often don't understand that if there is no electricity, they are going to get a very limited inspection," Tamny says. "You could end up with a lot of surprises if you don't have those systems turned on prior to the inspection."
Swimming pools, which naturally are more common in such states as California, Arizona, Nevada and Florida — where foreclosure rates have been high -- are also a special concern if a home has been vacant. Some inspectors won't include a pool as part of a basic inspection. Others will include the pool, but again, it may be impossible for the inspector to check out the equipment if the utilities have been shut off.
"You probably will have to accept the pool (as-is because) it's unlikely that you'll be able to get the whole thing up and running just for the purpose of an inspection and then shut it back down," Tamny says. "You could have thousands of dollars in repairs."
As-is home purchase can be risky
Some banks have procedures in place that allow prospective buyers to turn on the utilities, but the buyer may be required to pay a deposit to the utility company and put his or her own name on the account, even though he or she doesn't own the vacant home. That inconvenience may prompt some buyers to forgo parts of the home inspection that can't be performed unless the utilities are on.
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That can be risky, because unanticipated repairs can cost thousands or even tens of thousands of dollars, and the buyer typically will have no recourse with the bank. That means the buyer will be stuck with whatever problems the house has.
"Buyers are attracted to a house because it's discounted from what it sold for a number of years ago and they are hoping to get a bargain. They don't always understand that sometimes the problems make up the difference between the cost of the house and what they are getting for a discount," Tamny says.
Vacancy may affect homeowners insurance
Homebuyers also should know that insurance companies may decline to issue a homeowners insurance policy until the agent looks at the vacant home, says Dick Luedke, a spokesman at State Farm in Bloomington, Ill. The agent's once-over isn't the same as a professional home inspection, but it can mean extra expense if the home is in poor condition.
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"If the home is uninsurable, we wouldn't write the policy. If the problems just increase the risk of the potential of a future claim, then that might increase the premium," Luedke says.
A homeowners insurance policy also may require a vacancy endorsement, again at an extra charge, if the home will continue to be vacant for more than 30 days after the sale. If the vacancy is due to major repairs, a dwelling-under-construction rider may be necessary as well.
I guess Naramdo doesn't like America and thinks personal ambition is a lie, because that is what home ownership is all about. Yup you can be satisfied to have others fix your home and pretty much you live there at their will, not yours.
Buying an older home is as always an adventure, there will always be some unexpected problems. But isn't life just that an adventure and full of unfulfilled expectations? Personal pride in owning your own home, to raise your family in, using your own ingenuity to repair or remodel. For the less ambitiuous and lazy there is rental property, but don't call home ownership an "American Lie" call it what it is a dream, and Americans are dreamers.
I just had to respond to his comments.
As in any endeavor if you are not a expert hire people that are experts in their fields.
Always read the property disclosures and have a inspection performed.
Vacant homes are not a problem if you follow proper practices and exercise care and do your due diligence.
And always use a REALTOR you can ask for their NAR card or look on their business card for the "R" logo (trademark).
When I bought my house it had been a foreclosure and was empty for 2 years. It is a 100 year old house to begin with foundation problems that I knew about and of course old wiring. However, I did not expect to have every pipe break under the crawl space because there were signs everywhere that said the pipes had been winterized. I also did not expect there to be a ground hog living under the shed or giant ant hills throughout the property. But in retrospect having lived here for 10 months and put as much into it as I paid for it which was $25,000 I would not have wanted to live anywhere else. I have enjoyed all the headaches and laughs that we have had. It has been fun and painful all at the same time but since it is an old house just under an acreage and just outside the county line, it was what I needed for myself, my teenager and my 4 dogs.
hire a local electrical contractor to bring portable power to the site and have power up inspection done.
All valid points, but mostly if you're buying an REO cash, then it's as is, period.
But if you're financing the purchase through FHA or conventional loans the banks now will demand that water and electric are on at the time of the inspection and appraisal so a proper assessment is made. Actually, with FHA now if there are light fixtures, outlets, or any plumbing fixtures missing it will request that those items be repaired so the appraiser can go back and verify that it is in "livable" condition before they approve the loan.
Most banks are also using FHA guidelines these days for their conventional loans.
Reason being that they don't want to take the risk of the new owner not being able to make all the necessary repairs and they end up with another bad loan in their hands.
There is another type of loan, which in my opinion is the safest if anyone is financing an REO, which is a rehab loan, in this case a GC makes an assessment of the damages and the amount needed for the repairs is then built into the loan to guarantee they will be made.
When that happens the buyer knows exactly all that needs to be fixed in the property.
Those loans take longer and are harder to get but worth the initial headache since it avoids surprises in the future.
But one is never completely void of surprises when it comes to home buying, even when purchasing new construction. Not much different from buying a car...just way more money.
MOST UTILITY COMPANIES WILL NOT TURN UTILITIES BACK ON WITH A "BALANCE OWED" BY THE BANK WHICH FORECLOSED ON THE PROPERTY OR PREVIOUS OWNER.
Always get a home inspection, even on a newly built house. Get a home inspector with a reputation for being a 'deal breaker' if you can. Real estate agents hate these kinds but they are the best for the BUYER.
A lot of the foreclosures right now are in developments built during the bubble. Rapid construction, many shortcuts, unskilled labor, all contributed to shoddy construction. Many builders also run a mortgage co or have close ties with one, and steered buyers to predatory loans, even committed mortgage fraud.
Don't let anyone tell you that everyone who defaulted on these vacant h ouses was just a deadbeat or fool. Sure, some were. But, some were victims of mortgage fraud, and/or got stuck with a lemon house, an illusory warranty, and have no legal recourse because of the arbitration clause in the builder's and warranty's contracts.
I used to volunteer for a consumer org. Complaints on new homes grew every year. Then during the bubble they started including more mortgage fraud. When the prices started dropping form their artificially inflated highs, there was a drop in construction defect complaints. A lawyer I knew who handled construction defect cases told me that now they were getting foreclosures in these instances. Think about it--if you bought a new house that was a lemon AND you were upside down in a predatory loan, would you spend tens of thousands or more on lawyers, engineers, and repairs, or would you walk?
Get a good home inspector.
yes be very careful. but the short sale properties are held by banks and they are responsible for upkeep, maintenance, and taxes. the reason some of these properties are vacant for so long is the banks lawyers not caring. they get paid wether the home is sold or not. the real estate agents lose out by showing the property to many people and do not get a penny till it is sold. i know this from experience. i put in a full asking price offer on a short sale property, was pre-approved for the mortgage and was putting two thirds of the asking price as downpayment. that was june 2009....the property was sold this month for $10,000 less than i offered.
evidently the banks do not need the money