In today’s fluctuating real estate market, buying a foreclosure can be a great opportunity to get both a new home and immediate equity.
At the same time, buying a home that’s been foreclosed on comes with its own set of challenges. For starters, a foreclosed home can often come in sad state of disrepair, back taxes and/or homeowners assessments may be owed, and the home rarely comes with the benefit of disclosures and reliable statements that come from the homeowner of a conventional purchase.
With the help of an experienced real estate team, you can navigate the risks and find the home that’s right for you.
With foreclosures, there are a few chances for deals – each with its own risks and rewards. Here’s what to expect if you buy…
Pre-foreclosure
If the current homeowner still owns the property but knows that they’re running the risk of foreclosure – and potentially destroying their credit and losing their equity – they may be eager to sell on a deadline, leading to a short sale that can work to your advantage. What’s the risk? At this stage, things may have to move very quickly for the seller. Act too slowly and your deal runs the risk of falling apart; jump too quickly and you may rush into a purchase that doesn’t get you your ideal price-point. Read our more extensive conversation on short sales for more on that topic.
At Auction
If you have the cash in hand, you may be able to scoop the bank’s bid on a property. But take caution before you spend all you have at auction. Research the prices of other homes and property value trends in the zip code so you don’t overspend, and be aware of risks like liens on the property and potential repairs (as bidding may force you into buying virtually sight-unseen).
Post-foreclosure
Assuming the bank has taken possession of the home from the homeowner (or retained/gained the property at auction), it is now probably looking to sell for as much as possible, in order to recoup its investment. That said, the bank also doesn't like being in the business of owning residential property, which gives you some leverage. The bank is most likely looking to get rid of the property as soon as it can, before the home falls into greater disrepair or shows its neglect.
The bank’s urgency and competing priorities can give you an advantage – if you go into negotiations prepared. You will have greater negotiating power if you have your income and assets verified by a mortgage lender as a part of your pre-approval at the start of the process. Your lender cannot ask you for these things, you have to volunteer them. You can also ask the bank’s real estate agent for evidence of any inspections that have been done on the property to suss out the need for any work or repairs. In some cases, you might even make your offer dependent on a satisfactory inspection or completed fixes.
Taking advantage of foreclosures can make for a truly rewarding home buying opportunity. To get started, drop Real Group a line! We’ve got the experience and connections necessary to help find the home – and the deals – that work for you.
