You’ve seen those TV shows – Property Wars, Flip or Flop, and others of that like. Because of their huge popularity, there’s now a burgeoning interest in buying foreclosed homes. It’s a great way to buy a house on the cheap for investment purposes, right? It can be, but it can also be a financial disaster. You have to know how and when to consider buying a foreclosure. Here are just a few items to consider when looking to purchase a foreclosure.
Foreclosure is what happens when a homeowner stops making mortgage payments. When that happens, the lender has the option to seize the home and initiate the foreclosure process – because the home is the collateral for the loan. In some states, foreclosure can be completed in just a few months, but in other states it can drag on for years.
There are basically two types of foreclosed homes. These are bank-owned homes and real estate owned (REO) properties. In both cases, the property is owned by the lender, and the difference lies in the particular stage of the foreclosure process the property is in. The chief difference is that REO properties are further along in the process, having already gone to auction and remained unsold.
How to Know When the Time is Right
The time to consider buying a foreclosure is when you are prepared to:
Banks and other lenders are in business to lend and make money, not maintain homes. So they don’t do any maintenance on or make repairs to foreclosed homes. That means that many if not most of these homes are suffering from some degree of disrepair and deterioration.
Foreclosed homes, then, are sold as-is, and you will have to make the needed repairs. You should have an inspection done, and that may provide some negotiating leverage – but only if there are no other, higher offers. Not all foreclosed properties need repairs, but most do.
Buying a foreclosure almost always means a good deal of waiting at some point. Typically, it takes longer to buy a foreclosed property than it does to buy a home through the traditional route.
First, you’ll have to slog through all the offer and counteroffer back and forth and when the bank does accept your offer, you’ll have to wait again. A bank’s asset manager will usually have a work backlog, and that slows everything down. You can expect more than the usual 30 to 45 days to close typical of buying a home in a traditional sale transaction.
DO YOUR HOMEWORK
When buying a foreclosure, you can’t just assume that it’s selling at below market value. That’s not always the case, so you have to do your homework. Understandably, lenders want to get back as much of their money as possible and because of that, they sometimes try to sell a property at a price above its worth.
To make sure you’re not being taken, you should have your agent run a comparative market analysis (CMA) to see what comparable homes in the area have sold and are selling for. A good agent will factor in and allow for the needed repairs, including the cost of materials and labor. If you have the experience, you can do this yourself, but it’s best to have your agent do it. (Find out more about CMAs at 303-565-6348.)
Contain the Risk
Buying a foreclosure can indeed be a good deal – a house to live in acquired on the cheap or a profit-generating investment property. But the fact remains that there’s always some risk involved. You can, however, contain and limit that risk if you lean on the expertise of your local agent and/or attorney especially one with experience in and knowledge of foreclosed properties, especially given that each foreclosure can present unique challenges.
Contact me if you are thinking about buying a foreclosure in Broward County! I am happy to answer all of your questions! 303-565-6348