Foreclosures seem to be a hot topic of conversation even amongst people that are not in the real estate market. I am often asked “Are you finding a lot of deals with all the foreclosures happening now”. My standard answer is “yes, typically”. Foreclosed properties are usually a great opportunity to buy a property at below market prices. You just need to understand some basic rules, differences, and tips:
- Foreclosed properties are also called REO properties and are owned by banks after a borrower (ie: owner/mortgagee) has defaulted on their loan and the bank has gone through the proper legal methods to take the home.
- You will find that most bank-owned properties are already priced agressively. Despite what you might here the people on TV infomercials tell you, the banks that own the REOs are not interested in even reading “low-ball” offers. That type of offer will often go unanswered. Banks have an established (but confidential) price strategy that they rarely deviate from.
- The banks have no emotional connection to the house and in fact they have probably never seen it. It is just another file on a desk of someone probably in another state. These asset managers work a regular job and do not respond to offers outside of the work week. Typically because of their workload, they can take days or weeks to respond to an offer.
- Because of the length of time in working with a bank, do not count on closing on the date you propose in the purchase agreement. The bank will set their own schedule. Therefore, allow yourself enough time to move out of your previous house! You don’t want to be stuck homeless waiting for the bank!
- Read all the documentation that the bank provides regarding the sale. Often your earnest money is non-refundable after the inspection period ends if you fail to close. Additionally, the bank will normally charge a fee per day (per Diem) for every day the closing is late (but will then occasionally close late because of their own problems with no excuses or restitution to the buyer).
- Inspect the property thoroughly prior to the end of the inspection period. Typically the bank will not negotiate (or repair) anything found on the inspection. They will simply respond that you an either cancel the purchase agreement or buy it as-is.
- Because these homes are vacant, be sure to do a walk through the day of the closing. I have seen pipes freeze and vandals break in and damage houses between the time we saw it and the closing.
- There is no need to track the sheriff sales or foreclosure notices in the paper or pay for a list from an Internet provider. All foreclosures (in Minnesota) are listed with real estate agents. This means that they can easily be found on your local MLS via a Realtor or a public website.
These are only some highlights of the difference in the process of buying foreclosure properties. I recommend you use a real estate agent that has previously sold foreclosures. They will help you navigate your way though this unique, but potentially profitable process.