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Purchasing REO (Real Estate Owned) Property

by Engineer Designer on July 3, 2010

As sign of the time, unfortunately, banks are becoming owners of more and more homes that have been abandoned by their former owners. These home are placed on the market  in the banks attempt to recover at least part of their investment. Some good deals can be had but the condition of the structure, be it home or commercial building, can be a real "dog's breakfast". This can be for many reasons, but usually these units have gotten the short end of the former owner's attention. The homes were usually lost during very stressful time for the former owners, and much has been allowed to deteriorate. Issues can range from minor to major. It is certainly important that a potential buyer of such a property becomes fully informed upon the condition and probable cost to remedy. The following Florida Codes should be considered: 3401.7.2.5 Repairs and alterations amounting to over 25 percent but not exceeding 50 percent of the value of the existing building may be made during any 12 month period without making the entire existing building comply provided such repairs and alterations comply with the requirements of this code for a building of like area, height and occupancy. 3401.7.2.6 When repairs and alterations amounting to more than 50 percent of the value of the existing building are made during any 12 month period, the building or structure shall be made to conform to the requirements for a new building or structure or be entirely demolished. The extent of damage repair, as a percentage of "value", must be determined. Value is an elusive term, so a basis must be established. The Tax Appraisers value is universally recognized but does not always keep up with the current times. You want this number to be high which will give you the best chance of staying low in percentage of work to value. It is likely, today, that the tax appraisers value is your best bet. Also, they are looking for value of the structure itself so delineating between property and structure value is important. As to repairs, it goes without saying (this date of February 2009) that times are tough for construction personnel. One can get excellent deals in getting the repairs done. The contractors will be appreciative. Most are looking for ways to get through these lean times. The kinds of problems that might be encountered are myriad.  They may include:
  • Mold and other from leaks
  • Old construction short falls that are now evident. These can include improperly sized beams, over stressed floors or roofs, or the like.
  • Structural modification that were done "under the radar", without professional guidance or permit.
  • Settling issues manifesting in cracks that are beyond what is considered normal.
  • Termite damaged, either mitigated or not, which was allowed to eat into important structural elements - but never fully handled.
  • Of course, others.
A good general inspection is vital. That inspector will identify areas of structure as well as MEP (Mechancial, Electrical and Plumbing),  roof,  site,  windows and doors and other general condition factors. Some structural issues identified will fall beyond the inspectors ability or willingness to address. That is where hiring a professional comes in. A Professional Engineer (structurally oriented) will be able to access the situation and create a remedy which you can have bid. Your repair will need permits and the permits will required stamped repair plans. Few things worthwhile and profitable are easy. Buying a foreclosed home or building is challenging and will require much care and attention. But the results may well be beyond your expectations as to the "ultimate value/what you paid" ratio. If you have further questions or a situation to discuss give us a ring on click below. Tough economic times are nothing more than opportunities for those who will look and who will act.