I can’t tell you the number of friends and clients that have come to me with what they think is the greatest secret in all of real estate — the power of sale (POS) property. While such properties can often be had at a bargain, and more than a few that I’ve dealt with personally have yielded a high level of appreciation for their new owner, the full story shows that POS is not for everyone.Allow me to elaborate.
The first thing to remember is, almost without a doubt, the place will be in need of renovation. The walls, floors, carpets, maybe even the electrical/ plumbing and yard, will all likely need some overhaul. Those who cash in best on POS are those who can handle some, or all, of that renovation personally.
Another thing to understand is that POS properties are sold “as is.” It’s not a matter of negotiation, as the vendor’s necessary attachment to accompany any offer will indicate. Also, the seller will not make any guarantees as to the chattels or fixtures. The window coverings, the shelves in the garage, even the appliances, are not guaranteed in the sale.
Other things to consider are that the seller will reserve the right to postpone your closing up to 60 days with next to no notice. So if Gloria’s POS was closing on Aug. 1, she could find out on July 31 that her closing has been pushed to Oct. 1. Even after she moves in, Gloria is not guaranteed to keep the appliances, for example — the previous owner has a specific period of time to attempt to reclaim those possessions.
All of these non-guarantees, on a legal level, are to allow the defaulting time to come up with the money to reclaim lost assets. Banks and other lending institutions will not make improvements to a property that may revert back to the original owner. So what does all this mean? It means that if you’re considering a POS, you must take into account the additional expenses (renovations, possibly appliances, potential rental costs). Remember, since the closing can be pushed, not everyone is in a position to take advantage of POS — 60 days of renting is a cost that most would shy away from.
Having said all of that, I have yet to see appliances be seized, the closing to be pushed or a buyer dissatisfied with a POS. While much of that can be attributed to proper research and analysis, the darker scenarios are still possible.
For more information, contact Paul at amitp@rogers.com.
