August 4th, 2016 5:07 AM by Jackie A. Graves, President
a foreclosed home is a little different from buying a typical resale.
the upside, most bank-owned homes are vacant, which can speed up the process of
a foreclosure is definitely a bit of a grind. It's not easy," says Robert
Jenson, owner and founder of the Jenson Group at RE/MAX Central in Las Vegas.
"You're getting fantastic pricing, but sometimes it takes going through a
lot of houses and writing a lot of offers to get the home you want."
first 2 steps in buying a foreclosure should happen almost simultaneously: Find
a real estate broker who works directly with banks that own foreclosed homes
and get a preapproval
from a lender.
Zimmerman, a Memphis real estate investor and author, recommends that shoppers
first visit any site with a database of foreclosed homes. You also could look
at a local real estate website that lets you filter the results to see only
foreclosures. You might find the acronym REO, which means "real estate
owned" (owned by a bank, that is). This signifies that a home has been
through foreclosure and the lender is selling it.
goal of combing through foreclosure listings is not to find a house; it's to
find an agent. Banks usually hire 1 or a few real estate brokers to handle
their REO properties in a market. In a lot of cases, the buyer works directly
with the bank's broker instead of using a buyer's agent. That way, the commission
doesn't have to be split between 2 brokers.
lot of these Realtors have a long-term relationship with these banks, and they
know of listings that haven't even come on the list yet," Zimmerman says.
"Call them about the listings that you're interested in, but also ask them
about listings that may be coming up because sometimes it may take a day or two
or even a week before a listing actually comes onto the database."
a request might not always pan out. In places where thousands of foreclosed properties
are for sale, you might not get much one-on-one attention from overloaded
agents. To prove that you're serious about buying, says Jenson, "right
before or after you meet with the agent, meet with the lender."
you plan to pay cash, you'll need a recent preapproval letter from a lender.
The letter will describe how much money you can borrow, based upon the lender's
assessment of your credit score and income.
problem is buyers want to find the house first, and then they think they'll
work out the financing," Jenson says. "But the problem is the really
good deals on these bank-owned, they go quick -- and the buyer doesn't
necessarily have time to try to work out the financing afterward. They need to
work that out first."
says some first-time buyers make the mistake of assuming that the bank selling
the home will also finance the mortgage as part of the deal. "Don't expect
to get financing from the bank that foreclosed on it," she says.
"That's a totally separate transaction, and they view it that way. The
people in the (bank's) REO department are not loan officers. They are getting
rid of bad assets."
no rule of thumb on what the bank's bottom line is on price. Just as with any
other real-estate purchase, you have to look at the recent sales prices of
comparable properties, or "comps."
says: "You really have to look at the comps in today's current market
conditions and write a competitive offer based on that. Sometimes the bank
prices the homes really low, and the home will have multiple offers over list
price within hours. Sometimes it's priced too high, and you can come in lower.
A lot of times, buyers will come to me and say, 'We want to write offers for
half price.' It just doesn't work that way."
in mind that foreclosed houses generally are sold as is. That means that you
shouldn't expect to get a discount to compensate for repairs. Jenson says:
"Let's say the house is listed for $200,000, all the comps are $200,000,
and so the client comes in and says, 'Hey, look, I want to buy this house but
I've got to do paint, carpet and fix some mold damage, so I want to take
$15,000 off the price.' You know what? All the other ones were in the same
condition, and they sold for $200,000."
further counsels to look at the "absorption rate for your product
class." After apologizing for getting "too fancy," he explains
that he means you should find out how quickly comparable houses are selling. In
foreclosure, a 3,500-square-foot house with a pool in a gated community might
sell within days or hours, whereas more modest homes might sit on the market
for weeks. Or vice versa, depending on market conditions.
homes in your product class are selling swiftly, "the best advice on a
bank-owned property is to come in at your highest and best, unless the property
has been sitting on the market forever with no activity," Jenson says.
"If you're going to be upset because you would have gone $5,000 more, but
you lost the property, just bid the higher price in the first place."
repairs are almost inevitable with foreclosed houses, Jenson and Zimmerman
recommend getting to know tradespeople who can assess and repair damage from
pests, mold and leaks. Zimmerman says you should assume that the air
conditioning needs to be fixed, and possibly the heating system, too.
all sounds daunting. But at least you don't have to wait for the owner to move
out of the house.