5 Things You Must Know Before Buying Foreclosed Homes

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It is pretty hard to turn on the t.v. or log on to the internet today without hearing about the rampant foreclosure market. Foreclosed homes are quickly becoming an enormous part of the MLS (Multiple Listing Service) in just about every local real estate market. It is understandable that homebuyers and real estate investors alike would like to ride that wave to make money on these deals or find that dream house for a steal. Before you jump in head first and buy up all of these great foreclosed homes there are some very important things to consider to make sure the process goes smoothly and you get the home you are looking for.

This may sound a little basic but the first thing you need to know about foreclosed homes is just what exactly is a foreclosed home. Every state in the US has specific laws and guidelines that lenders must follow to take back a home from the homeowner for non-payment of the loan. Some of these homes went through the foreclosure process for a very lengthy period of time before they were finally put on the auction block at a sheriffs sale to be sold to the highest bidder. Only then when there were no other bidders that offered enough money did the bank take this home back to be included in their REO (Real Estate Owned) inventory with the hopes of selling this non-performing asset to a home owner or real estate investor.

Now that you understand a little bit of the basics of what a foreclosed home is you are probably wondering where to find all of these great deals. I can tell you and you may not want to hear it but not all foreclosed homes are great buys and no really good deals just come to you, you have to work for them. That being said there are a lot of sources for foreclosed homes. These include; going to the banks directly through their website listings, finding an REO agent that services the banks, working with a local buyers agent to set up an MLS search for you and utilizing the for fee listing services on the internet. If you want more details on these sources, google my article, 5 Easy Ways to Find Foreclosed Homes. by Judson Voss.

Lets say that you found some homes in your area that are foreclosed homes and you are excited about the possibility of getting a really great deal. As I mentioned before just because the bank is selling a home it is not automatically a great deal. This is where you need the assistance of your realtor. Before you do anything other than look at the home you need to find out what the home is really worth. If a bank lists a home for $150,000 it might be worth $250,000 but it might also be worth every bit of $135,000. Banks do not list homes at a bargain basement price all to often.
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Ask your buyers agent to perform a CMA (Comparative Market Analysis) for the home you are interested in buying. This analysis should include homes that have sold in the neighborhood your potential deal is in and should also be similar to the home you would like to buy. This means it should be about the same size with the same number of beds and baths and it should also be of similar quality and condition. The homes should also have been sold recently, the last 6 to 9 months. Dont ever look at a home that is for sale to decide what your home is worth. Only homes that have sold and a buyer was willing to pay that price matter to you.

Now that you are comfortable in with what you and your realtor think the home is worth it is time to make an offer to the bank. Here is my big, Go into this with your eyes wide open advice. Banks want to sell their homes. They have a huge inventory and they are losing money on them. Banks are not motivated private home sellers. They have exactly zero emotional stake in selling the home. They are very large organizations that have done tons of analysis and are purely numbers driven. If you make an offer to a bank for far less than what they are asking for a home and provide no explanation then expect your offer to be declined if even responded to at all.

There are entire courses on how to make offers to banks to get them accepted. At a very high level you need to know that the bank needs a reason to accept your offer for much less than they are asking for the home. These reasons can include a list of repairs needed and the cost to you for making these repairs or a detailed explanation of why the home is not worth what the bank is offering. Your CMA will come in handy for providing your reasoning to the bank. Even with the best offer keep in mind that these are very large organizations with many levels of decision makers and your offer may not be responded to right away. That is ok. Make sure your realtor keeps up with the bank and checks on the status of your offer on a regular basis.

If you have done everything right and with a little bit of luck you and the bank will negotiate a price that works for both of you and they will sell you the home. If you have bought a home before then you may be familiar with the closing process. Closing on a foreclosed home with a bank is similar to any other closing. There are a couple of items you need to watch out for. First of all this home was taken back from a homeowner. There are many legal pitfalls involved with this process. If a homeowner chooses to sue the bank over the foreclosure process you want to be covered. Regardless of how you finance the property it is important that you get clear title and your attorney that does the title search acquires title insurance for you. This will provide you piece of mind in case anyone tries to lay claim to the property.

You will also need to read through the offer you have accepted very carefully too. Many banks will put clauses in their sales contracts that provide a per diem fee or a charge that you must pay for every day after the agreed upon closing date if the closing is delayed. The bank does not care why you need to close later and they will almost always insist upon charging the fees if you signed the contract. Make sure you can close when you say you can to avoid any additional fees.

If you keep in mind each of these five items during your foreclosed home search you will have a leg up on your competition and will give yourself the added confidence needed to find the home you are searching for. Foreclosed homes can be very good deals and many of us have built businesses around acquiring them. With some work and education you can too.

by: Allison McArthur

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