Some say that the best deals in real estate today are foreclosed properties.
REOs and short sale properties have flooded the market, and buyers are taking advantage of the lower prices of these distressed properties. Many of these properties are beingsold within days or even hours of becoming available. Why are they so appealing? Quitesimply; they are priced to sell. But it’s important to understand what is involved with REOs andshort sale properties and to know what you’re getting yourself into if this is the route you decideto take.
- REOs are properties that banks have foreclosed on after the homeowners have not been able to make payments. The current influx of these properties comes from many homeowners in recent years choosing unrealistic mortgages, or borrowing heavily against the value of there home. Banks are left with the burden of maintaining the properties and selling them in a down market. Since banks are not in the business of warehousing and selling properties they use aggressive pricing to get the bad assets off their books. There in lies the opportunity for new home buyers.
- Short Sales are properties that a homeowner owes more than the current market value of the property. If a bank believes it can avoid less of a loss, they will sell the property short rather than putting it into foreclosure. There are two different scenarios 1) lender agrees to sell for less than the amount owed on the mortgage and forgive the seller their remaining debt 2) owner sells for less than the amount owed and brings the balance of the debt to closing. In both situations buyers have the opportunity to purchase these properties below market value.
Foreclosures, REOs and Short Sales can absolutely be some of the best deals out there, but they are more complicated to buy than traditional homes. If you’re thinking pursuing these types of opportunities, here are some suggestions that might help your search:
• Find an experienced agent
Get a real estate agent who is experiencedwith REOs and Short Sales and the processes involved in buying them. There are important details and steps when purchasing these properties and it’s important that you work with an agent who knows how to get you the best deal possible and have the skill set to close the deal.
• Be Prepared
Being a serious buyer in this market means you need to have all your ducks in a row when you make an offer. That means that your lending application, earnest money, and credit scores need to be packaged up and ready to be delivered with the offer. This will give your offer the clout that the banks are looking for. Sometime lower offers are accepted purely on the buyers “Buying Power”.
• Educate Yourself
These are complex deals, the greater your understanding of the “Policies and Procedures” the less flummoxed you will become when hiccups surface and hard decisions need to be made quickly.
• Know Your Inventory
Although I do not recommend that you take on this process by yourself, the better you understand the elements of areas, condition, and pricing the better equipped you will be at choosing properties that fit your own needs. REOs and short sales are usually listed on the Multiple Listing Service and can be found on the majority of websites that feature properties for sale. You can see which properties are in the process of foreclosureon RealtyTrac.com or find homes that have already foreclosed on sites likeZillow.com, and Trulia.com Many lenders alsohave their foreclosed properties listed directly on their websites.
• Hope for the best, prepare for the worst
In all likelihood, you will not be “wowed” when walking through the door of a foreclosed (REO) property. Most are sold “As Is” and it’s often the case that in the months leading up to foreclosure, homeowners disregard maintenance and let the condition of the home deteriorate. Expect to see homes stripped ofappliances, light fixtures and any other items that can be sold. You will have a better chance of finding Short Sale propertiesin better condition because seller’s are vested in the sale of the property and tend to maintain the same pride of ownership, Keep in mind that lenders will not lend on homesthat are considered unlivable. So either the bank will need to fix a home withmajor water damage, missing flooring, broken windows and exposed wiring, oryou would need to come in with all cash.
• Be patient
Transactions usually take a little longer when working with banks.Normally, you may hear back on an offer from the seller the next day. But that’snot always the case when working with banks. An offer may have to be passedaround to several people for review and approval. Banks only work during normalbusiness hours and won’t be considering your offer on the weekend or in theevenings. Expect a few days or a week to hear if your offer on an REO hasbeen accepted. The timeline for a Short Sale can vary depending on the motivation of the lender. Complications also arise if more than onelender is involved. The second lender may have specific demands in order toreceive as much back from their initial loan as possible. So if you are trying topurchase a new house around the time you’re selling your current one, a shortsale property is likely not the way to go. Short sales can be more convenient forthose looking for an investment property or first time buyers who are not in a hurry to move. Sales –
• There are other fish in the sea
Don’t worry if you don’t get the first or second property you make an offer on. There will be others. Experts say we couldsee many months, if not longer, of foreclosures come on the market.Focus on a city or neighborhood that you want to buy in and make sure yourreal estate agent knows what you’re looking for. Foreclosures can comeand go quickly, especially those in good condition. Be ready to pounce,but don’t be too disappointed if you miss out. Another property will likelybecome available soon.
• Build Your Team
As my 5th grade teacher taught me “No Man Is An Island”. Build your team, get into relationship with a Realtor and mortgage professional that understands your wants, needs, and limitations. There are tax credits; FHA loans, negotiating with the banks, and a slue of legal liability, so you want to be in business with professionals who have your back covered.
It’s been a long time since we’ve seen such a large number of foreclosures onthe market and people are jumping at the chance to take advantage of the lower prices. But these transactions can be much trickier than standard sales. A foreclosed property could beone of the best investments you make, but also the most complicated. If you take time to research and talk to real estate experts in your area, you will likely find yourselfreaping the benefits of your investment for years to come.
