The idea of getting a great deal on a power of sale house can be attractive to the right buyer, but there are many things that an informed buyer must be aware of if considering this type of purchase. I know right now with the interest rates rising, many feel there will be more Bank Sales & Power of Sales coming on the market. Here is what you need to know.
Choose the right agent As a buyer, you always want your own representation to ensure that your interests are protected during negotiation, and especially if you are buying a bank sale or power of sale property. The listing agent will be representing the interests of the seller (the lending institution selling the property) and many of the clauses and conditions that protect you in a “normal” transaction don’t apply in a power of sale transaction. This is why it’s extremely important to have your own agent who will be able to explain how the changes to the standard forms will affect you.
Be prepared Often when a deal comes up, you will have to move fast and might not have time to get a lawyer, mortgage pre-approval and insurance quote in place before you write up your offer. If these issues have already been dealt with and arranged prior to submitting an offer, you will be able to proceed confidently.
Is it really a deal? There are many factors that result in a house being sold below market value and they’re not always straight forward. Here are some issues for bargain hunters to consider:
Condition – If a house has been occupied by people with no interest in it’s condition, it can be left in horrible disrepair. The terms “fixer upper” or “needs tlc” are often used to market these types of properties. For the right buyer, this can be an opportunity to fix it up themselves and save some money along the way. What should be kept in mind, is that repair and renovation bills can add up quickly and what may seem like a “decorating challenge” episode can easily turn into “the money pit”! Be realistic and objective. If a house is being sold below market value because of poor condition, take a look in the neighbourhood and see what similar homes in good condition are selling for. Why? Because after you’ve put time, money and effort into repairing your new house – will it still end up being a good deal?
Here’s an example:
House A is being sold Power of Sale for $700,000 – your real estate agent has prepared a report of local comparable sales and you know that House B on the same street sold last month for $720,000 and it was in fantastic condition. House A needs a new roof, appliances, landscaping, new flooring, paint & décor throughout and the kitchen and bathrooms need to be renovated. You estimate that this work will cost you about $25,000.00 At the end of the day you will have paid $720,000 for a house that you could have bought and moved right into right away for $5,000.00 less!
It’s easy to look at a low purchase price and think “Wow, what a deal!” but you must make sure that after all of the additional costs have been factored in, it’s still a good deal.
Grow Houses – Marijuana grow houses being sold Power of Sale after a police bust are becoming a greater concern in our marketplace and they can affect a potential buyer in more ways that one. Perhaps the greatest concern is health. Grow houses are kept hot and moist like a greenhouse would be and this is the perfect breeding ground for mould, both visible (on walls and floors) and non-visible (behind walls and in ceilings). Not only is mould unsightly and smelly, it is also a severe health hazard and in some cases, deadly. Once a house has been infested with mould, it can be extremely difficult and costly to eliminate and in some cases, impossible. No deal is worth the health of you and your family!
In addition to mould, the electrical supply, wiring and plumbing in grow homes has often been tampered with and can result in extensive repairs for the new owners.
Another consequence of purchasing a former grow home is disclosure. Real estate agents are required by law to disclose in a listing any knowledge they have of a house having ever been used as a grow home. This means that if you buy a former grow house and want to sell it 5 years down the road, you will be required to disclose this fact to all potential buyers, thus affecting the salability of your home and the soundness of your investment. Having facilitated grow house transactions myself, I can tell you that one thing neighbours never forget is which house was busted for what and when! In the case of a grow home, in addition to buying a good deal, you may also be buying a stigma that will stay with your house for a very long time.
No utilities – Normally, when you walk into a house for sale, you can turn on the lights and hear the furnace working – not always the case with a Power of Sale. Consider the fact that you may be in a situation where you are placing an offer on a property before knowing if the heating & air conditioning works, the toilets flush and the wiring is functional!
Additional clauses – Almost all listings being sold under Power of Sale will have accompanying documents or “schedules” that will be attached to an offer. Written into these schedules are often clauses that release the seller (the lending institution) from any warranties or representations regarding the property. What does this mean? It essentially means that after you move into the house, if the roof caves in, the basement leaks, and the appliances stop working you cannot hold the seller responsible. Some common additional clauses are as follows:
- In the event that the Buyer requires vacant possession of the property and such vacant possession cannot be provided by the Completion Date, the Seller may, in it’s sole discretion, extent the Completion Date for any period(s) of time…
- The Purchaser shall purchase the property as it exists at the present time, on an “as is, where is” basis, without representation, warranty or condition with respect to the fitness, condition, zoning or lawful use of the Property. The Vendor, or anyone on it’s behalf, makes no representations or warranty with respect to any defects in workmanship, state of repair, location of structures, walls, remaining walls or fences (free standing or otherwise). The Vendor shall have no responsibility whatsoever to remedy any defect, infraction, encroachments by buildings or fences on the Property or adjoining properties or streets, comply with any outstanding Municipal, Provincial or Federal or other work orders, or complete any unfinished work. The Purchaser acknowledges that he has relied entirely upon his own inspection and investigation with respect to quantity, quality and value of the property…
- The Vendor shall not be required to furnish or produce any abstract, deed, declaration, or survey or other document or evidence of title except those in its possession…
- The Purchaser shall pay the Vendor on closing, the balance of the purchase price, subject to adjustment for the current years municipal taxes and the Vendor shall not be responsible for the payment of, and there shall be not adjustment for, development fees, lot levies, sewer charges or current water rates…
- Notwithstanding any other clauses in this Agreement, the Vendor has no knowledge and makes no representation whatsoever as to whether the Property has been insulated with urea formaldehyde foam insulation or any other type of asbestos insulation or whether the property contains any other substances, liquid gases or materials which may be hazardous or toxic…
It can be a little scary to know all of the hazards and potential pitfalls of buying a home via Power of Sale, but this is all part of becoming a savvy and educated Buyer – while it’s exciting to focus on the advantages, it’s just as important to be aware of the disadvantages. Despite all of this, the potential for finding a great deal is still certainly possible and with the right agent working with you, you can feel confident about jumping on that deal when it pops up!
If you have any questions, or would like to talk more about this issue or real estate in general, feel free to call me anytime @ 416-300-3004 or 905-831-2222 or email me at firstname.lastname@example.org