How to Buy a Foreclosed Property at a Bargain Price
By CAROLYN SAID - Scripps News Service
How do I buy a foreclosed property at a bargain price?
As bank repossessions continue to
mount, it's a question that is being asked more and more often. The answer
is, foreclosures are available and reasonably priced -- but don't expect a
screaming deal.
"More than 50 percent of our customers come in wanting a great deal on a
foreclosure," said Pat Lashinsky, CEO of ZipRealty, a brokerage with more
than 2,200 agents in 19 states. "The percentage that actually do (find one)
is significantly less. When you find a good deal, there are five or six or
seven offers, and you're up against professional investors."
Finding a foreclosure is straightforward, according to a range of industry
experts: Decide on a budget and geographic area; get pre-qualified for a
mortgage; work with a buyer's agent; check the MLS -- the same steps you
take in buying a non-foreclosed property.
But there are potential obstacles in navigating the unfamiliar territory of
the properties known in the trade as REOs -- short for real estate owned by
banks. "It takes a certain breed of borrower to buy a foreclosure," said Joe
Metz, a Realtor-broker with Re/Max Active Realty in Fremont, Calif. "I hold
a lot of REOs open on weekends. I can tell if a buyer is new to the whole
thing; they just get really upset with the condition of the house."
That's because banks don't do more than a very basic clean out of foreclosed
properties. They don't paint. They don't replace carpets. They don't
remodel.
"We explain that if you want a staged house, you'll pay 50 grand more for
it," Metz said. "This is a deal. These are all things that can be corrected
with your checkbook."
Here are more factors to consider in buying a foreclosure:
-- They're discounted, but not giveaways. Banks usually determine an asking
price after hiring several real estate agents to give opinions about a
property's value.
"Banks are getting very aggressive on pricing," said Glen Bell, a Realtor
with Keller Williams Realty. "We're seeing them priced at 10 percent to 15
percent less than non-REO properties. Reducing prices to attractive levels
has become their strategy ... to unload assets."
However, it's important to remember that banks, and the people who work for
them, are skilled at analyzing prices and market conditions.
-- They can draw multiple offers. Don't think that you're the only one with
the brilliant idea to buy a foreclosure at a discount. "We've seen multiple
offers in about half of our sales and pending transactions," Bell said.
-- They're sold "as is." Maybe the foundation is shot; maybe the kitchen
dates from the Paleocene era; maybe there aren't any appliances. You
certainly should take those conditions into account in writing your offer,
but you should not expect the bank to fix any of them. As with any home
purchase, you should arrange inspections. You'll need to factor in fix-up
money in your up-front costs.
A big difference from buying from an owner-occupant: "When it's a regular
seller, you get a lot of disclosures," said Gina Foronda, whose brokerage
has about 60 bank-owned foreclosures listed for sale in the San Francisco
area. "Since this is an REO and (the bank) didn't live in the property they
can't tell you anything. It's buyer beware."
-- You must be pre-qualified. The same folks unloading foreclosed properties
are the ones who've turned off the money spigot. They know all too well how
hard it is to get a mortgage nowadays. They aren't interested in dealing
with buyers who can't qualify for a mortgage.
"Ability to close is a factor," Bell said. "They want to see that you can
get financing. Every single one of them is asking for prequalification of
some sort."
Another tip, according to Lashinsky: Consider getting your mortgage from the
bank that owns the property. "If two offers come in, and one is $3,000 less
but they will take out the mortgage with them (the bank-owner), that's more
valuable to them," he said.
-- Auctions to avoid: There are two types of foreclosure auctions. In
California, every property going through foreclosure is auctioned on county
courthouse steps, generally for the amount owed on the mortgage, plus fees.
Those auctions are all cash, don't guarantee title and don't give a chance
to inspect. A whopping 97.3 percent of properties at those auctions revert
to the lender, according to Sean O'Toole, founder of Web site
ForeclosureRadar.com.
-- Auctions to investigate: The second type of foreclosure auction is run by
an auctioneer selling several hundred properties on behalf of banks.
Financing and inspection reports are available. Generally these properties
already were listed with an agent and failed to sell.
scrippsnews.com
