Properties in foreclosure are buyer opportunities
Q:
I’m wondering how I can buy a foreclosed property. I keep reading about all the foreclosures, and there must be some that are in pretty good shape and a good deal. What is the process for buying one?
A:
There are generally three points where you may be able to buy a troubled property: through a pre-foreclosure sale, at a public foreclosure auction, or from a bank or other entity that has taken ownership of the property, post-foreclosure.
The first option – pre-foreclosure sale – is generally a “short sale” where the lender agrees to accept a price for the home less than what the current owner owes on it. These are difficult to do.
The second option – buying a home at auction – is probably the riskiest of the three. You generally won’t be able to inspect the inside of the home, increasing your risk of buying a house full of problems. Also, homes sold at auction don’t necessarily have a clean title. There may be tax liens or other liens against the property. When you buy the home, you buy those problems.
One of the benefits of buying a home from a bank or other entity that has taken ownership of the property (known as real estate owned properties or REOs) is a clean title. The bank will usually clear the title before putting the home on the market. Other benefits of REOs are access to the property so that you can inspect it thoroughly before buying, and an already established price, so you can make an offer and move on.
REOs are sold through agents. You can find listings from some bank websites, such as Wells Fargo and Bank of America. You can also find listings through independent brokerages and on websites such as foreclosures.com.
If you want to pursue buying a REO, the first thing you should do is get preapproved for a mortgage. There are a lot of cash buyers in the REO market, and these properties can move quickly. Next, call a listing agent, or hire a buyer’s agent with experience in REOs to help you locate a property. Arrange to see the property as soon as possible.
Most REOs are sold “as is” so you need to get a home inspection pronto. Make your offer contingent on the results of the inspection. But putting too many contingencies on your offer may sink the deal. Better to walk away and keep looking than load up your offer with contingencies.
Cash is king in this market because these buyers can move so quickly and there are fewer last-minute problems that can derail the deal. You may be able to improve your chances by making your best offer right at the beginning. Do your homework. Ask your agent to research comparable sales. Check out websites like zillow.com, which tracks real estate values.
