Doing it the hard way: What we’ve learned from buying a foreclosure

Guest post by stealmystapler
This foreclosure is ours!
This foreclosure is ours!

My husband and I recently embarked on one of our biggest adventures together yet: buying a house. We planned to do it the normal way — endless house tours with a real estate agent, working with a private seller, and moving in soon after buying. But the fates had a different plan for us. We bought a foreclosure.

We’d walked by the beautiful, old house for more than a year, and had noticed it was quiet and empty. After sitting empty for three years, it finally came up at a real estate auction; we were brave enough to bid, and lucky enough to win. Over the past several months, we’ve learned a lot, and we’re still learning!

Note that I’m an historian, not a real estate agent or legal professional, but here’s a few pearls of wisdom from what I’ve learned (and what I wish I’d known)…

Know the area

This is wise, whether you’re buying a house on the private market or as a foreclosure, of course. We’d have never dared to jump into something like this without knowing the area so well, though. By living just down the street and knowing the house, we were ready when it came up on the MLS — not that we were expecting it to.

Work with an agent

Our agent got us into the house quickly, helped us find an inspector on the weekend, bid on our auction, and helped direct us toward financing options. She’d worked with investors on similar projects before, and was able to give us good direction. We would have been lost without her!

Get an inspection (if you can)

We’d have never bought a house at a private sale without an inspection, and we were lucky to be able to do one in this case. Our inspectors were able to confirm what we were seeing — we were looking at a great piece of property. It was just missing copper piping and needed all new heating and plumbing. More big projects would have made it a deal-breaker, and a few hundred dollars for the inspection was well spent.

Auctions are exciting, and terrifying

We worked with our agent to set an amount that we would not exceed, so emotions and the excitement of the auction wouldn’t get in the way. She did the bidding for us online, and maintained close contact by text and phone in the hours leading up to the auction’s end. I must have refreshed the auction page hundreds of times, and left work early because I knew I couldn’t focus on anything else. My heart leapt when I saw the time run out, and I spent a few squealy minutes on the phone with our agent before grabbing some celebratory rum.

Don’t be (too) afraid of unusual financing

Would you believe you can’t get a regular mortgage for a house that doesn’t have heating and plumbing? We ended up with a private investment loan that could be arranged quickly and included money for necessary repairs. The interest rate is higher, but it offered more flexibility. Due to the higher interest rate, we also researched an exit plan, and are planning to refinance after six months. Other options could have worked too, but this one worked best for us.

The bank is in control

We moved quickly on our financing to meet the bank’s 45 day closing deadline. And then the bank continued to push the deadline back while they finalized paperwork on their end. We weren’t able to close until four months after we won our auction. It was frustrating at first, but we became more zen about it after realizing it meant we weren’t working on the house in wintertime!

Be prepared for curveballs

They’re coming. We were shocked to find out we couldn’t get conventional homeowners’ insurance. After clearing all of the hurdles and tripping on this one, my husband was ready to can the whole deal after learning this. Fortunately, people are always willing to help you find a solution. For an investment property that no one is living in, vacant property insurance is the way to go.

Read over everything at closing

Our documents were a bit more complicated than most. We asked plenty of questions, and still missed something. Fortunately, it wasn’t as critical as the thing we did notice — my husband’s name misspelled on Every. Single. Document.

Celebrate!

Then get to work making the place look loved, and start meeting the neighbors. Soon after closing, we dashed over to the house with mini bottles of champagne and enjoyed them while taking a tour and reveling that this beautiful 19th-century house and quarter acre of land was finally ours. We cleared the snow from the sidewalk, started spending time around the property, and immediately began meeting the neighbors. Their stories have been invaluable, and they’re as happy to talk to us as we are to them.

A few months into our ownership, we’re getting busy arranging schedules with contractors, researching the history of our house, and getting ready to paint the walls. We’ve tested and strengthened our relationship already, and we’re keeping our eyes out for the next curveball — and anxiously awaiting the first spring day where we can enjoy a well-deserved beer on the porch.

Comments on Doing it the hard way: What we’ve learned from buying a foreclosure

  1. What a big week in the life of the house! We’ve got new heating and plumbing and a new fence coming in – and now a post on Offbeat Home. Who could ask for more? 🙂

    • Thank you so much for sharing your experience! As someone who hopes that home ownership may be in her future soon-ish, reading about the unique circumstances of your home acquisition has been helpful. I hope that your repairs/renovations go according to plan and that you’re able to settle in soon! PS: I would LOVE to see a home tour in the future! 🙂

  2. Home buying is so much fun! We were warned by our buying agent ( get a buying agent) to avoid short sales and foreclosures and we learned that the hard way. Turns out you can’t just offer to pay the $45,000 listing price and voila SOLD! Nope it becomes a haggling game for the banks and can take months and we were renting and had to sign a new lease and commit another $12,000 for a years rent. We moved on to a traditional sale of a home we love and its the right one.

  3. Did you go through Auction.com? I work there, and it’s so great to hear the stories behind home purchases! I’m so glad it worked out so well for you guys!

    • Molly – It was a different online auction website. Buying a house that way was definitely an interesting experience!

  4. On Inspections:

    I bought a fixer-upper. I did not know this, because my inspector (who was a jack of all trades apparently but an expert in none) didn’t tell me.

    He “tested the plumbing” by running water down the drains, “for a few min.”

    He “tested the electrical” by “spot checking” if outlets were grounded – he checked one outlet.

    He “tested the roof and structure” by looking at the house from the sidewalk.

    He missed that the plumbing had tree roots (and had to be replaced within less then 1 year).
    He missed that the current running over the electrical was unsafe and that while we had 3 prong outlets, only the one he checked was actually safely grounded.
    He missed water damage in EVERY SINGLE ROOM of the house.
    He missed that there was no insulation in the attic – and that there were quite a few birds nests.
    He missed that the pool plaster was shot, and leaking, and in need of immediate replacement.

    I could go on, but honestly it just makes me angry. If I had it to do over again I would hire a specialist to inspect each part of the house. An expert – someone with daily experience in their field and the tools required to DO that job.

    Have a plumber come out and check the plumbing.
    Have a contractor come out and check the roof and other structural elements.
    An electrician for the electrical.
    A Pool company for the pool.

    That way you get a good idea about what’s going on, AND a good idea about what it will cost to fix it. I probably would not have bought my house if I had done things this way, and I would not have been unhappily surprised by 2k for my electrical on move in day, or 3k for copper pipes when I got home from vacation, or 10k for the pool a month after I moved in….

    I love my house, but all my money went into repairs instead of making it feel more like home with paint, and furniture, and things you can see.

    • That really stinks. This sounds like you could be on this show:
      http://www.hgtv.ca/holmesinspection/

      We are under contract to buy right now, and it’s scary! It seems like we got a thorough inspection. Our inspector got on the roof, used sensitive meters to detect moisture and gas leaks, etc., but I’m just waiting to see what he missed. Hopefully there aren’t too many big surprises.

      I would also recommend finding out what certifications the inspector has. Our realtor gave us a list, and we cross referenced that with the list of ASHI-certified inspectors for the area. I’m glad my MIL works for a construction company and provided guidance in this area!

        • It wasn’t quite THAT bad.

          My father in law is a general contractor, so we got a lot of that work done at COST rather then retail and that was a big help!

          And my husband is super handy and enjoys working on and around the house. But the next time I buy a house, I’ll have 5-6 different inspectors stopping by…

          • I’m not sure you have realistic expectations for inspections. While it sounds like your inspector did miss some pretty major things, it is also unrealistic to expect him to have found some of the things (for example, the roots in the plumbing, if you didn’t pay for a sewer scope). And many of those speciality contractors you want to have do your inspection in the future — they don’t do them for free. You could end up spending $1000 or more just for inspections going that route. Politely, it sounds like your inexperience exacerbated the issues with the inspector.

    • Eek! This is what I’m so afraid will happen when we DO start seriously looking at houses and find “the one.” My fear of huge repairs that will require major financial backing is part of why I’m relieved to be still renting…

      • Renting is for sure easier – but as nice as that is, it’s just as nice having our own place….

        Take your time, don’t rush anything. You probably won’t get your first “the one” anyway so just enjoy the process. It goes much faster then you think….

    • Yup. Inspections are interesting things. We bought our house in Colorado, where no pest inspection is required or even advised (because apparently pests aren’t very “common”). Four months after buying our house, we found a termite infestation. $1800 later, we are all set and it could have been far worse – but this all could have been avoided with the proper, though completely optional, inspection.

  5. I’m already waiting for the follow-up with a tour. Pretty-Please? (and Congratulations!)

    • I’d mulled over doing a post on how to research your house’s history or how to fix old wood windows (I’m totally in the Cat Rocketship Repair as Rebellion camp), but not doing a tour post. Perhaps even my subconscious hasn’t quite figured out that it will be home in a matter of months – not just a big project! Thanks for the suggestion 🙂

      • I would love either/both of those post ideas, too, especially as a lover of older homes. Regardless of what you decide to do, I, for one, would love to hear an update in a few months when you do officially move in! 🙂

      • I would love to read about window restoration. We just bought our first home, also a foreclosure, in October and have only replaced a few broken panes so far. Our windows need some love for sure.
        We are always finding something hinky anytime we do a repair but nothing that our inspector should have seen.

  6. Congratulations on your wonderful new adventure and for being so brave to save a lovely house. Wishing you many wonderful memories in it!

  7. We bought a repo 16 months ago, “as is”, without the possibility of an inspection. We felt if the house needed bulldosing, the property was still worth the asking price.

    What we learned? Things ALWAYS take longer than you think. Things ALWAYS cost more than you think. It’s ALWAYS more work than you think. Habitat for Humanity is now our department store!

    We did most all of the work ourselves, including the gutting and removing the second floor. Tradespeople to do the heating, plumbing and wiring were hired on. When we ran out of steam, we got a guy to hang drywall, and another to tape/mud/sand and install tiles.

    In the end, we still have trim and finish work to do, but it was a great adventure. No fights between us at all, and we ended up getting married in the backyard with friends at our DIY and with friends wedding.

    Almost ready for a new adventure…

  8. We did the same thing 2 years knowing it was a huge amount of work. We bought a place and knew what we paid was at least the land value if it all tanked. 2 years later we have at least quadrupled the value after a lot of demolition and rebuilding. I have loved the journey and we are thinking g we might just do it again!

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