Should you buy a home that's been vacant?

A for-sale house that's been vacant may look like a bargain, but buyers should be cautious because expensive problems often lurk inside homes that have been unoccupied for some time.

A home can become vacant due to a marriage, job relocation, death or other life event. But vacancies today are more often due to a bank foreclosure or short sale in which the lender accepts less than the mortgage balance. It's these bank-owned properties, sometimes called "real estate-owned," or REOs, that tend to be "problem homes," says David Tamny, owner of Professional Property Inspection in Columbus, Ohio, and 2010 president of the American Society of Home Inspectors in Des Plaines, Ill.

Vacant homes can suffer from a wide variety of ills due to neglect, deferred maintenance on the part of the prior cash-strapped homeowner and vandalism, Tamny explains. Broken water pipes, stolen copper wiring, damaged appliances and unhealthy molds are but a few examples of the potential problems that may await buyers of these homes.

The risks for buyers are front and center since the number and percentage of for-sale homes has increased during the housing slump. More than 2.2 million for-sale houses in the U.S. were vacant in 2008, according to the U.S. Census Bureau. That figure was more than double the 1 million vacant for-sale homes in 2000. Vacant homes exist throughout the country, but the percentage of vacancies in 2008 was higher than the national average in the South, Midwest and West, and lower in the Northeast.

Turned-off utilities limit home inspection

Homebuyers typically hire a professional to conduct a visual inspection of the home and prepare a report on its condition. That's a wise precaution, but not even a well-qualified and thorough home inspector can see inside walls. Nor can an inspector assess the condition of a home's plumbing, electrical wiring, heating-and-cooling system or major appliances if the water, gas or electricity has been shut off.
"Buyers often don't understand that if there is no electricity, they are going to get a very limited inspection," Tamny says. "You could end up with a lot of surprises if you don't have those systems turned on prior to the inspection."

Swimming pools, which naturally are more common in such states as California, Arizona, Nevada and Florida -- where foreclosure rates have been high -- are also a special concern if a home has been vacant. Some inspectors won't include a pool as part of a basic inspection. Others will include the pool, but again, it may be impossible for the inspector to check out the equipment if the utilities have been shut off in the vacant home.

"You probably will have to accept the pool (as-is because) it's unlikely that you'll be able to get the whole thing up and running just for the purpose of an inspection and then shut it back down," Tamny says. "You could have thousands of dollars in repairs."

As-is home purchase can be risky

Some banks have procedures in place that allow prospective buyers to turn on the utilities, but the buyer may be required to pay a deposit to the utility company and put his or her own name on the account, even though he or she doesn't own the vacant home. That inconvenience may prompt some buyers to forgo parts of the home inspection that can't be performed unless the utilities are on.
That can be risky because unanticipated repairs can cost thousands or even tens of thousands of dollars, and the buyer typically will have no recourse to the bank. That means the buyer will be stuck with whatever problems the house has.

"Buyers are attracted to a house because it's discounted from what it sold for a number of years ago and they are hoping to get a bargain. They don't always understand that sometimes the problems make up the difference between the cost of the house and what they are getting for a discount," Tamny says.

Vacancy may affect homeowners insurance

Homebuyers also should know that insurance companies may decline to issue a homeowners insurance policy until the agent looks at the vacant home, according to Dick Luedke, a spokesman at State Farm in Bloomington, Ill. The agent's once-over isn't the same as a professional home inspection, but can mean extra expense if the home is in poor condition.
"If the home is uninsurable, we wouldn't write the policy. If the problems just increase the risk of the potential of a future claim, then that might increase the premium," Luedke says.

A homeowners insurance policy also may require a vacancy endorsement, again at an extra charge, if the home will continue to be vacant for more than 30 days after the sale. If the vacancy is due to major repairs, a dwelling-under-construction rider may be necessary as well.