While a condemned house might sound like the black sheep of the real estate industry, it doesn’t mean it’s any less desirable. In fact, you might want to consider buying one if the circumstances are right.
“Condemned property is a property that the government has taken over from a private owner,” explains Desare Kohn-Laski, broker and owner of Skye Louis Realty in Coconut Creek, FL. “You certainly can buy it. In some cases, you may need to tear down an existing structure and start over. In others, you can make changes to the property that are in compliance with the city’s codes, thus ‘lifting’ its condemned status.”
Why are houses condemned?
This can happen to a home for a number of reasons, and a dangerous state of disrepair is only one of them. These are some reasons a property is condemned:
- A home has been vacant for a long period of time, usually 60 days.
- The utilities in the home have been discontinued.
- An inspector discovers specific hazards that make the house unsafe to live in.
- If the home is located in an area designated for public use or construction, then the local, state, or federal government can use the law of eminent domain to seize the property and either demolish or modify it to make way for a new freeway, park, water reservoir, or other project to be built that will benefit the public.
Benefits of buying a condemned house
Why does it behoove you to pursue one of these homes? Financial reasons, mainly. You’ll likely be getting the place at a steep discount.
In some cases, the property will sell for little more than the value of the land, which might be a few thousand if there’s no competition to buy it, says Christy Murdock Edgar, a Realtor® in Northern Virginia and Washington, DC. And if you’re willing to put in the time and money to rehab the house, you can significantly increase the value of the property—and make a huge profit if you decide to sell.
How to buy a condemned house
The actual process of buying is the same as with any property. You hire a real estate agent, make an offer, and fill out the paperwork.
“The big difference,” says Edgar, “is that you’re dealing with an entity—a bank or the government—rather than an individual, and that adds complication. Policy issues, approval issues, value issue—all of these take more time.”
If the home was condemned for nonpayment of taxes, you’ll be dealing with the tax authority. But you could also find yourself buying a property from HUD, or a code enforcement entity. If the property was once eminent domain, you’ll be haggling with a specific government department—roads, airport authority, etc.
“The department would also be in charge if the condemnation was reversed and the property’s now available for sale,” says Edgar.
Before buying a condemned property, you’ll need to find out the violations and liens attached to a property’s title; this will help you navigate through any bureaucratic maze.
“Say a house is condemned because it’s no longer up to code,” Edgar explains. “It may be condemned by code enforcement. Then the homeowner stops paying on the house they can’t occupy so the bank puts a lien on it for unpaid mortgage and the taxing authority puts a lien on it for unpaid taxes. If you’re trying to get this property, you’ll have to deal with a lot of different players in getting an offer accepted,” she adds.
In this particular case, you’d probably have to “let the foreclosure process run its course, pay taxes, then bring the house up to code before you can sell or occupy it,” she says. Luckily, you don’t have to figure this out by yourself.
“Many real estate agents specialize in working with investors to find undervalued properties and are well-versed in identifying and negotiating for the purchase of condemned properties,” assures Edgar.
Financing a condemned house
Your agent’s expertise will also come in handy when getting a mortgage.
“Most traditional lenders only lend based on the condition of the property as it currently exists,” Edgar explains. “There may be many costs associated with rehabbing a condemned property that aren’t covered by the lending process.”
To finance a condemned property, you might need to go the nontraditional route and talk to a private lender.
“Many private lenders structure loans based on the property after rehab or building, allowing you to build in demo and construction costs,” says Edgar. They’re also set up for short-term loans, in case your goal is to fix and flip.
Find out what liens exist on the property, ensure the title’s clear, and don’t forget to double-check that the property is zoned for residential use, Edgar says. “You want to make sure the property will work for the purpose you have in mind for it.”
Risks of buying a condemned house
The biggest risk in buying a condemned home is that the cost of restoring it could be much higher than the value of the house itself.
“If it was due to severe structural or repair issues, you might end up losing a lot of the value in the cost of rehabbing the property itself,” Edgar says.
Purchasing a condemned property could also expose you to additional liability if the home’s problems are creating a neighborhood issue, Edgar adds. “For example, if an unaddressed rodent infestation is encroaching on other properties, or if a child is injured while ‘exploring’ an unsecured condemned property,” she says, “the liability accrues to the homeowner.”
For those reasons, Edgar recommends working with a real estate agent to ensure that you have a clear understanding of the issues surrounding the home. All of them.
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