Budget-conscious shoppers, investors, and savvy deal-makers alike all agree that the best way to get good homes at exceptional prices is to buy foreclosed homes. It’s true the process does take a little bit of extra legwork. But the bit of extra effort will be more than worth it when you end up with an great new home at an unbelievable price. Here are five questions–and their correct answers–that you should ask yourself before you buy foreclosed real estate.
1. What Am I Getting Myself Into When I Buy Foreclosed Homes?
Naturally you know you’re getting into the bargain area on housing. That’s true of anyone who wants to “go foreclosed”! But there are a few other things you should know about buying a foreclosed property:
- Most bank-owned foreclosures come as-is. Banks aren’t very interested in fixing up a foreclosed home. They just want to sell.
- Most bank-owned foreclosures need work. Some of them need serious work.
- Most foreclosures sell quickly–you have to act fast.
- “Foreclosure” does not mean “must sell at any price.” Banks would rather get the property off their hands as soon as possible, but they are unlikely to throw away money. If they get nothing but lowball offers, they can wait until some good offers come around. More likely, other people are making low-yet-reasonable offers. You should, too.
- Despite all of the above, buying a foreclosed property can get you a great home at an excellent price.
2. Is My Real Estate Agent Experienced with Buying Foreclosures?
It may come as a surprise to lean that many agents aren’t–while others actually specialize in them. Since to buy foreclosed homes is a different process than buying ordinary real estate, it helps to have an agent who has done so before. The bidding can often be much more competitive and the seller less forgiving of mistakes. An experienced agent will help you keep from getting blindsided, by not getting blindsided themselves.
Even if you choose not to get your own agent, most banks have real estate agents working on their behalf to help unload foreclosures. Keep in mind, however, that this agent will first and foremost have the bank’s bests interests in mind! He or she also won’t have much time for you if you have not been pre-approved for a loan.
Another advantage to getting a real estate agent that specializes in foreclosures: They are likely to know most, if not all, of the foreclosures in a given area. Sometimes they can alert you to a the kind of house you would like, before it’s even openly listed! Your own real estate agent will go to bat for you and get tough with the bank if that’s what you need. That alone is often worth their small fee.
3. Why Should I Get Preapproved to Buy a Foreclosed Property?
Foreclosure sales don’t work the same as regular home sales. Since most foreclosures are very good deals, they tend to have a great deal of offers placed on them. Sometimes, a bank may get several within hours of posting a live listing! And since the bank is ready to get the property off of its hands as soon as possible, it will often consider offers from preapproved buyers over buyers that haven’t gotten approved.
Another good reason to get preapproved is that it will save you a great deal of anxiety about which houses you can and cannot afford. You also won’t waste your time bidding on homes that are currently out of your reach.
Loan preapproval can even give you a bit of leverage in negotiations. If the bank is asking $82,500, but you’ve only been approved for $79,000, the bank may bend a bit–especially if other bidders don’t have preapprovals.
4. Will the Bank That Owns the Foreclosed Property Also Lend Me the Money to Buy It?
The answer here isn’t as clear-cut as we might hope for. That’s because the bank’s REO (Real Estate Owned) department is entirely separate from its loan officers. It’s job is not to approve loans, but rather to get rid of bad assets.
Of course you could apply for a loan with the same bank that’s selling a house. But–you guessed it–they’d much prefer you come in preapproved!
5. How Can I Be Sure I’m Getting a Good Deal When I Buy Foreclosed Homes?
We’ll give you a hint: It helps to have a good agent! But you can start brushing up on how to buy foreclosed homes before you ever make a call to an agent.
It’s actually easy to make yourself look very savvy when it comes to foreclosed properties. Simply keep an eye out in your area for other foreclosed homes. Notice what they are selling for, keeping in mind square footage, amenities, number of rooms, neighborhood, and any other important considerations.
Some real estate sites allow you to search specifically for foreclosed properties. You can also try a Google search with the terms REO and Real Estate Owned in your area.
Finally, you’ll want to notice how quickly these homes sell. Exceptional deals often go under contract within hours of their listing. Properties that linger have probably been priced a little too high. Those will often come down eventually, as the bank (or the bank’s agent) realizes it just won’t sell quickly at the current price.
Of course, it helps to have a real estate agent at your side. Even if you’s studied up hard on foreclosures, they are likely to have an even better working knowledge of which properties are available in your area, as well as which ones represent the best deals. They can even give you a list of individual contractors such as plumbers, electricians, and carpenters–something many homeowners need when they choose to buy foreclosed homes!
Buying foreclosed homes does take extra work, but it’s actually not very hard. All you have to do is be realistic about your expectations, find the right real estate agent, get preapproved for a loan (not as difficult as most people think), and cultivate a bit of awareness about the real estate situation in your area. Follow these steps and you’re likely to find a great home at an even better price.
2 Point Highlight
Your own real estate agent will go to bat for you and get tough with the bank if that’s what you need.
Follow these steps, and you’re likely to find a great home at an even greater price.
