Monday, November 18, 2013

What to Expect When Purchasing a Foreclosed Home

If you have never been through the purchase process of buying a foreclosed home, there are a few things you need to expect.

1. Know in what stage of foreclosure the property is


There are 3 stages that a foreclosed property can be in, and each have their own unique challenges.

Pre-foreclosure
At this stage, the owner technically still owns the property, but knows that there is a potential for foreclosure.  This could be for any number of reasons, but most likely it has to do with them not being current on their payments, leading their credit to be in danger.

The challenge with this stage is the timeline is often tricky.  Sellers may be expected to either close quickly, or be negotiating with a bank on a short sale scenario.  Be prepared to be patient in these cases.



Buy at auction
Approach these with great caution, as there is often a good deal of risk when it comes to these deals.  Repairs are often unknown, and their could be leins on the title.

Be prepared to have cash on hand, on the case that you beat the bank and win the auction.

Post-foreclosure
The property is now fully foreclosed, or as it is known in real-estate, REO - that is, a Real Estate Owned property by either a bank or a lender.  In this case, the bank won the auction and are trying to recoup as much money as they can based on what is owed on the property.

Banks, typically, do not like owning property and would like to get rid of it as soon as possible.  The longer a home is on the market, especially, the more the bank will be likely to want to work with you.

Know that come wintertime, there may be some aspects of an REO property that you will not be able to have inspected by your home inspector.  Plumbing is often winterized to ensure the pipes do not get damaged by the cold.  It could be a gamble buying an REO that has been winterized.

2. Get a full approval letter from a mortgage lender


Having this on hand will give you more negotiating power.  In doing this, your mortgage lender will have verified your income and assets.

3. Research the property prices in the area and have your agent complete a CMA


Within the zip code that you are interested in purchasing in, take a look at what other similar properties are going for in the area.  Your agent can also complete a detailed CMA (Comparative Market Analysis) to help you with this process, and determine your offer price.

4. Get an inspection done on a REO


This will help you determine how much work will need to be done, as it is not obvious up front.  Your offer can be contingent upon these findings.

5. Remember that you have the upper hand


You have the power in negotiating these situations, regarding costs and making repairs.  Again, the longer the foreclosed property has been on the market, the more likely banks will be to work with you.


Looking at a foreclosed home, or a short sale?  Need some guidance in the process?  Don't hesitate to send me an e-mail or give me a call and I will be happy to assist you.


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