Foreclosure Buying Tips Part 3

This is part 3 of a 3 part series on how
foreclosures work and how to find the best home to fit your needs at
the best price.

There’s really no great mystery
to it, but there is a process and I’m here to do my best
explaining how each step works and how you can capitalize on it as a
consumer to keep a little more cash in your pocket.

The 3 steps are this:

1. Pre-Foreclosure
2. Foreclosure
3. Post Foreclosure REO(Real Estate Owned)

Post-Foreclosure

What This Means

The bank owns the property outright.  They are responsible for trying to sell the property, and the longer they own the property there is a possibility of serious devaluation.

Just consider this:  If a home is REO and on the market right now, what happens if that property has not sold by February?

Would there be an increased risk of damage due to freezing pipes, animal infestation, weather damage?  If there’s a heavy rain and the power is turned off, how is the sump pump supposed to stop the basement from flooding?

The Positives

1. They need to sell the property- The bank does not want to hold a liability like this for an extended period of time, they want to get it sold and recoup as much of their loss as possible.
2. They will (Eventually) cut the price as low as necessary to get the property sold- If you can get in at the right price, you may be able to get a home for less than the owner was able to sell it for, but don’t expect that to happen as soon as the home is put on the market.
3. The property is listed with a Realtor and you can schedule to go view it-  At least now you can get a good look at what you’re buying.

The Negatives

1. The Bank wants to recoup as much as possible- If the owner had enough equity to sell it at discount, why would he have let the foreclosure happen?  It typically only gets to this point because there was not enough equity to avoid it.  The bank also has increasing costs involved that they’re going to try and recoup as well.
2. The longer the home is vacant, the more problems it may have. It usually takes 45-90 days after foreclosure for the property to be available for sale like this.  They are neglected, and the longer they sit the more problems they develop, which means the more money it takes to make it suitable above and beyond the sales price
3. Inspections (If Allowed) are for informational purposes ony- The bank has no interest in making repairs, they’d rather it be reflected in the price.  Make sure you try to have a walk-out clause should you not like the inspection report.
4. You’re not the only one looking for a deal-  If the property has been on the market more than a week, it may not be the best deal.  My investors get daily updates on new foreclosures, and we view the best potentials the day they go on the market.  If you’re serious about getting a good deal, have your financing in line and be aggressive.
5. Banks aren’t known for their speedy response-  Don’t be surprised if a bank takes a week or more to respond to your offer, or if they require more than 2 weeks to settle.  Every bank has their own way of doing things, and some are faster than others.

How to Capitalize

1. Find a Realtor who knows how to identify the best deal daily- That’s what they do, and a good Realtor can quickly and easily assess the potential value.  Negotiation is key, make sure your agent is experienced in making these deals work.  It’s all about the art of negotiation.
2. Have knowledge of what repairs are going to cost-  There is almost always some sort of repair work, factor the costs into the offer you make.
3. Don’t be afraid to low-ball the offer-  You won’t be offending the bank, and if they’re not interested they’ll let you know.
4. Don’t be afraid to re-submit an offer- The longer a property sits, the more willing a bank is to make a deal, try shooting that low-ball offer again 3 weeks later…. it might just work.

Remember that at this point the bank has more
invested than just the loan amount:  There’s legal fees, departmental
fees, contractor fees (possibly) transfer/title/recordation fees, and
they are going to want to recoup that if at all possible.

Banks aren’t in the business of losing money, and
they have shareholders to answer to if they sold property from bad debt
for pennies on the dollar when they’re losing as much as they are on
bad loans.

If you had been able to buy the property from the
homeowner prior to foreclosure, there would have been less overhead
involved in the transaction, and you may have saved more money.