Tips on Buying a Foreclosure
We can’t help but consider the idea of buying a foreclosure, especially if doing so gets our foot in the door—literally and figuratively—of the real estate market and our first home. For some of us, these significantly lower priced properties offer the opportunity to afford something we wouldn’t have been able to buy before. Others see foreclosures as investments: buy low, flip for profit.
But just because foreclosures are on the rise doesn’t mean they’re right for all buyers. After all, McDonald’s has served more than 50 billion people; that doesn’t mean the burgers are actually good for you. Too often things that sound good aren’t so great once you read the fine print. And in the case of distressed properties, which are complicated and difficult to negotiate, you could end up “distressed” yourself. Study these tips then, to help you decide if buying a foreclosed property will be the kind of opportunity you’re truly looking for.
1. Buyer Beware
Auctions and courthouses used to be the most common way to buy a foreclosed home, and there are still several large scale auctions at which you can purchase homes for pennies on the dollar of their ostensive market worth.
However, at an auction you have several things working against you. Usually you are buying something you have only seen photos of and read brief information on. The homes are sold “as is,” but you aren’t usually allowed to inspect them prior to purchase. You may also later discover the property has outstanding liens against it. And, you have to pay cash.
These days, fortunately (or unfortunately, from the bank’s perspective), banks have repossessed millions of homes. That means you can buy a foreclosure directly from a bank, so the process is safer: the house will be clear of liens; you can inspect the property; and you can finance (if you qualify).
2. Elect to Inspect
The sticker price is only one figure you need to consider: Your “dream come true bargain” will fast become a money-sucking nightmare if you don’t accurately calculate cost. When people lose their homes, they are often angry and desperate. In the months before leaving, the former residents will not have spent time or money on the home’s maintenance. Upon leaving, they may strip copper pipes, fixtures and appliances. They may even purposely damage the home. And because many foreclosures have been abandoned for long periods of time, they can decay alarmingly.
To avoid underestimating the cost of repairs, hire a professional inspector. You can also seek help from a licensed contractor: estimates for repair jobs are usually free, and if you like the estimate, you already have the contractor for the job, right in front of you.
3. Study to Succeed
A vast databank of resources awaits you, if you put in the time and effort on research. For instance, since banks now list foreclosures with real estate agents, finding these listings is much easier than it used to be. Specialty companies compile and sell these listings, but you can get them for free by registering with brokerages like ZipRealty that allow you to search for foreclosed homes.
You don’t have to do all this alone either. Many agents today, having seen the writing on the wall, specialize in foreclosures and short sales. Using such an agent could only help the process. Find a certified short sale real estate agent in your area here.
Once you’ve found a foreclosed property you want to bid on, do some more research before you bid. Banks may not have much motivation to dump properties at bargain prices. Some may even be listed at market value. Banks with a higher number of foreclosures on their books may be more likely to negotiate. Study to know the true market value of the house: properties in areas with many foreclosures are worth less than those in areas with an overall strong market. Once you assess the market, a good place to start your bidding is 10-20% less than the price of comparable, non-foreclosed listings in that local area.
4. Patience is a Virtue
You might expect banks to jump at the chance to sell off foreclosed homes, but don’t be surprised if you have to wait months to find out if your offer has been accepted. The country’s lenders are struggling with a deluge of such properties and multiple bids upon them.
Note also the waiting period is a very uncertain one. Banks are likely entertaining many offers for an attractive listing. Someone may bid more than you, and you won’t likely get a chance to counter. This process, protracted and with zero guarantee of success, won’t please every buyer.
…So now we ask: What’s the verdict? Can you can stand to wait months and perhaps still be defeated (more than once!) in your quest for a foreclosure? Is the certain struggle worth the possible victory?