While buying a foreclosed home in Boca Raton might be a great idea and the start of a great adventure, it could also be an invitation to aggravation and disaster. Here are 4 things to consider before you ask your Boca realtor to start looking for these properties.
1. Price alone does not determine the investment potential of a foreclosed home in Boca Raton.
While the number of foreclosed homes that are available has decreased since the days of the great recession, foreclosures (also known as REOs) are still available. At this moment, 160 foreclosures in Boca Raton are listed on the mls. For those of us who thrive on abbreviations, REO means Real Estate Owned (by banks). “Buying a Boca REO” also takes up less space in a Tweet than “buying a foreclosed home in Boca Raton.”
Prices of foreclosed Boca condos currently begin at $1,500 (that is not a typo) and rise from there. At the moment, prices range up to $2,100,000 for REO properties in Boca Raton that include single family homes, townhomes, and condominiums.
FYI, there’s a simple reason the condo mentioned above is selling for close to nothing. The buyer must make a mandatory equity contribution of $70,000, which is paid in cash at closing, to the country club where the condo is located. In addition, there are mandatory annual club dues, which do not include homeowner association (HOA) fees, that will run from $15,000 and up.
Needless to say, buying foreclosed homes in Boca Raton country clubs will not add value to your real estate portfolio.
2. Never buy REOs in Boca (or anywhere else) without a thorough investigation inside, outside, and on paper.
The main reason for buying a foreclosed home in Boca Raton is that the home may be priced below market value. And there’s a good reason for that: most REO homes usually need extensive repairs.
For example, there might be mold or mildew problems due to lack of air conditioning. Or, the water pipes were ripped out. Or the roof is leaking.
Even more worrisome, maybe there are tax liens on the property.
Read this before buying a foreclosure
This brief anecdote tells you why REO due diligence is a must. A friend of mine recently found a 3/2 single family REO priced at $17,000. He asked my advice and I said, “It’s too cheap to be a bargain. Don’t buy it.”
He chose to ignore my suggestion. After all, he figured, what could go wrong at such a low price? He’s a skilled handyman, so he knows he can fix anything.
The moral of the story
Well, in addition to the repairs to the roof, the pipes and the walls (all of which he could handle) he discovered, after the fact, that he’d purchased a house with $74,000 in unpaid property tax liens. So, as the old saying goes: listen to your Boca Raton realtor and check every aspect before buying a property.
3. Buying a foreclosed home in Boca Raton is an exercise in patience
A typical Boca home purchase usually takes about 48 hours – sometimes even less – from offer to agreement. Then you inspect within 10-15 days. If all goes well, you make your second deposit and within 2 to 4 weeks, you’ve closed on the house and moved in.
But that’s not the case with an REO. That’s because you’re not talking directly to another person. Instead, you’re dealing with a bank. And banks have many levels of management
Unlike a home that is controlled by an occupant who takes one offer at a time, the bank invites multiple offers. So even though you are bidding on this property, you don’t know what others are offering. After the bidding process finally comes to a close, several levels of management will look at your offer. That’s just how banks work.
So you will have to wait – whether it’s a week, a month, or 3 months or longer – for the bank to respond.
4. Foreclosed homes in Boca Raton typically sell to the highest and best bidder.
The purchase process on foreclosed homes takes so much time because the bank, during a specified time period, is waiting to see what the highest bid will be.
On rare occasion, that high bid will be accompanied by a mortgage. When that occurs it is likely to be a conventional mortgage with a down payment of at least 20%.
However, buying a foreclosed home in Boca Raton usually requires a cash payment. Banks prefer cash because that buyer has already declared a willingness to pay a certain amount without the need for an appraisal to back up the offer.
An appraisal however, which is always the first step in a mortgage process, may fall short of the bid price. When this happens, the contract is null and void and the buyer gets back the deposit.
If this happens, the bank has wasted precious time. Therefore, it makes the most sense for a bank to seek a cash buyer who makes an offer that is closest to, or sometimes above, the listing price. That covers the “highest” aspect of the bid process.
“Best” refers to a lack of contingencies. No inspection. No mortgage. No nothing. Just pay the bank in cash and take the property as it stands.
So if you’ve got cash, patience, and a good real estate agent and title company in your corner, you’re ready to consider buying a foreclosed home in Boca Raton.
Marc Jablon, the Jablon Team
Re/Max Complete Solutions