Foreclosure Homes – Are they a good deal?
You’ll find there are some people who tout the benefits and advantages of buying homes that have gone through foreclosure. Often, those homes are offered up for auction to the highest bidder and there are some really good deals to be had at that point.
There are some very important pieces of information you should have before you start planning to buy a foreclosure home.
First, understand that a lender gave money to the person who wanted to buy that house in order for that borrower to make the transaction. The lender had some expectation that the bank would recover all that money plus some interest, but most lenders simply aren’t in a position to handle property.
They don’t want to foreclose on the house because then they’re going to have to do something with it. That means that the foreclosure process could take a long time while they look for some way to recover the loan from the original borrower, but it also means that most lenders are going to foreclose and then quickly offer the property at auction.
Foreclosures – Buying At Auction
You’ve probably heard about auctions that ended with buyers getting really good deals. That happens, but it’s not always the case.
Why would a lender agree to let a particular piece of property go for less than it’s worth?
Remember that the lender isn’t in the real estate business and their primary objective will usually be to recover the amount of the original loan plus interest, if possible. If the original loan had been paid down significantly, the lender could agree to sell the property for a fraction of its value.
Another important point is that these auctions will typically be made public. For the person hoping to bid on the property after the foreclosure is complete, this probably means you’re going to have some competition. This is the main reason it’s not a good idea to allow the foreclosure process to run its course before you try to buy a particular piece of property nor to buy it back if you were the owner before the foreclosure.
Most lenders aren’t anxious to see property in foreclosure. They’ll often work with the owner for a long time, hoping that the loan will eventually be repaid. But when they have to foreclose, they usually don’t want to hold the property long while looking for a buyer who’ll offer up a good deal. If you’re planning to visit some foreclosure auctions, you may very well find an incredible deal.
Foreclosures – Buying From The Lender
Most lenders move a foreclosed home over to another bank department named the REO department. This stands for Real Estate Owned. This department has many functions in the disposal of real estate. The REO department is charged with administrating the process of protecting the Asset and listing it with a REALTOR® to prepare it for sale to the public.
Unless you are an Investor or a Bulk Buyer, this is the best way for a person to purchase a foreclosure for their personal residence or investment property. WHY?
The reason I say this, is because you will have access to the home and can evaluate the condition prior to purchasing. When the property is in an Auction state prior to becoming an REO, they are sold “AS-IS” and with out inspections. The reason is this. Most of the time the original owner, who was foreclosed on, is still in the home. You can not legally enter the home to inspect it. Many times they may be renters occuping the property. Same rules apply. They “control” the property through a rental lease.
Once a REALTOR® receives the listing from the Lender, a set of action steps start. The Lender uses the Agent to be the “eyes and ears” in the town. Evictions process starts. Clean up and securing the property is ordered next. The Agent evaluates the condition of the property and creates a BPO (Broker Price Opinion) so the Lender understands what the “street market value” of the property is.
The Agent then works with the bank and they establish a “AS-IS” market price for the property. The listing agreement is signed and the home is registered into the MLS (Multi Listing System) and placed on the market for sale to the public.
Foreclosures – Buying From The Agency
Most buyers feel that when a property is listed and offered by the REALTOR® that it is overpriced and not worth looking at. In some cases, so Lenders are under pressure to get a higher return for a REO property. The Lender now has more costs in the process than before when it could have been sold at auction.
I know the “inside process” and “negotiation steps” of REO banks. I was a REO Listing agent for over 10 years before the crash of 2007. You can use my expertise for FREE and get my representation to work on your side as a Buyer’s Agent. (More later below)
My shameless plug above is to prove a point. The Agent that lists the property is working in the best interests of THE BANK! Everything you tell that Agent is information that is past onto the Lender that can be used to their advantage in any dealings you have with them.
To get a good, or better yet, a below market price on a home – You need an Agent that represents your interests and negotiates for you and not against you.
Once you have located some properties that you are interested in, then it is time to start making offers. Remember, Lenders did not occupy or live in the homes prior to them offering for sale. So almost 100% of the time, REO properties are SOLD “AS-IS” WHERE IS. No warranty or guarantees of condition what so ever. The good part is that you can now look inside the home and make some judgement on the overall appearance of the home.
A word of caution here. If you are buying your very first personal home, then a foreclosure is really not for you. Let me help you find a NEW home construction home.
McAllen foreclosures, or any where for that matter, are best suited to buyers that have money saved up, or a line of credit, for repairs. The lower good price usually comes from a home in average or poor condition in need of repairs. Completing those repairs at a lower cost is where many create their equity or profit in a purchase of a REO property.
For the most part, most homes are in good condition and in need of minor repairs. Some homes are in good condition and in some cases, the Lender has completed some repairs. Having an experienced Agent that can guide you, like myself, is invaluable at this stage. It is possible to buy a lot of home for the money. You just need to have guidance, patience, and have your finances ready.
When a “good deal” presents itself, many other Buyers are competing for the “good deals” also. This is the “make or break” timing that frustrates so many Buyers. When a property fits all your checklists and is something you want – You need to act quickly to secure the property with at least escrow and a written offer. There are ways for you to back out later if there are certain condition(s) that are not met. (Let you Agent help explain those conditions.)
The buying process from here is good for another post. Just take the information in this post to get started. Here is my closing thoughts on what to do next.