Buying Foreclosure Properties
In the past two years, the real estate market has taken a serious turn for homeowners, with literally millions of people losing their home to foreclosure. While bad for homeowners, the situation has been great for both buyers and investors that have in-depth knowledge of the foreclosure market. Property can be bought if it meets the following criteria:
* Pre-Foreclosure – In this situation, the home has not yet gone into foreclosure, meaning the homeowner still has possession.
* Auction – When bidding on a foreclosed home, you would bid along with other lenders
* Real Estate Owned – Also known as an REO, this is property owned by the lender
* Government Owned – For this, the government now has possession, which makes the process of buying slower since more documentation is required
Obviously, when it comes to foreclosed homes, a number of factors need to be considered.
1. Buyers Credit – Most importantly, make sure your buyer has good credit since the foreclosure market is highly competitive, meaning buyers and investors with good credit will get homes at the best prices. Typically, an FHA or VA loan, which are government loans are not good for purchasing a foreclosed home because of the condition of the property. Therefore, your buyer would need to come up with a much more substantial down payment, along with having good credit.
2. Buying a Home in Disrepair – Another consideration for foreclosed homes is the condition. Usually, these homes have not been cared for properly so repairs and upgrades are common. The repair might be minimal or major and keep in mind that if buying via an auction, buyers would not have the luxury of getting inside before making an offer so being prepared for making improvements is important.
3. Fair Market Value – Next, the buyer should understand of fair market value. Currently, with a large inventory of foreclosed homes, they are being snatched up by a large number of buyers. A home in foreclosure could end up being a bad investment so buyers need to know the highest fair market value for a specific property to ensure the bid is not more than that.
4. Flipping Property – You may have a situation where your buyer wants to purchase a home to flip it. In this case, he/she needs to know the current market value for the home for before and after repairs are done. In addition, the buyer should have a sound idea as to the type and cost of needed repairs, which would need to be done quickly. Providing buyers with a market analysis once repairs are done would be helpful.
5. Timeline for Buying/Closing – With a foreclosed home, you need to know the amount of time your client has, as well as educate your client as to how long the process for buying a foreclosed home would be. Obviously, the timeline for this type of property would be different from a traditional sale and based on the circumstances for a particular home, two to four weeks could be added onto the timeline.
6. Inspection Process – Next, the buyer needs to understand the value and protection an inspection offers, along with the process involved. For instance, some foreclosed homes go an entire winter without being properly prepared and no operating utilities. Sometimes, a lender would have utilities turned back on so the inspection could take place but this is not always the case. Then, the buyer might find repairs needed specifically to the utilities being shut off, such as a burst pipe.
7. Title Search for the Property Closing – Depending on the state where the foreclosed home is located, a title search may be required. A title company or real estate attorney could determine if this were the case but you also want to make sure the individual or company doing the search is thorough, looking for judgments, liens, and other issues. After all, most homes went into foreclosure because of non-payment so confirming there are no financial issues with the title could save the buyer tremendous headache and money.
8. Internet Search with No Results – If your buyer has spent a significant amount of time online looking for foreclosures but without much success, the problem is that many websites provide outdated information. Even good websites for real estate such as realtytrac.com cannot always keep up with the movement of foreclosures. Therefore, it is common for buyers and investors to locate property online to buy, only to learn the foreclosure had been sold weeks or months earlier.
9. Moving Fast when Buying a Foreclosure – Buyers need to know that when it comes to buying foreclosed homes, the market is so competitive that there is no time to dilly dally around, instead, they need to move fast.
10. Complex Documentation – Be sure you advise your buyers that paperwork and required documentation for a foreclosed property is extensive. In fact, when looking at required documents needed for a traditional purchase versus a foreclosed purchase, the different is substantial. Provide your buyer with information regarding the type of paperwork and encourage him/her to be patient during the buying and closing process. Foreclosures can be excellent opportunities for some people, actually helping get the real estate market back on track but it takes more work and time.
Oliver Darraugh has been a realtor for over 10 years. He writes widely about issues related to real estate and finance. His interests are currently focused on the UK foreclosure market and has recently built an online portal to help home buyers purchase foreclosed properties.
