Purchasing a foreclosed home is a great opportunity for families and investors alike who are looking for a good deal. However, the process is far from a simple affair. To get you started off on the right foot, let’s connect with some trusted industry sources and cover the 10 things you absolutely need to know if you’re in the market for a foreclosed home.
Leaky roofs, liens, and a variety of other factors play into the sale and acquisition of foreclosed and abandoned homes. Avoiding the numerous pitfalls that plague and hinder other buyers, as well as minimizing your risk, starts with a smart and educated take on the process.
Stepping away from the standard new home market and venturing into the world of foreclosed homes isn’t for the faint of heart. While there’s no arguing this point, that doesn’t mean that you should completely avoid this type of home purchase. As long as you can put the following tips and tactics to good use during your search for the perfect foreclosure opportunity, you’ll be well on your way to tapping into the underappreciated potential of this portion of the real estate market.
1. Figure out What Kind of Property You’re Dealing with
Before doing anything else, the team over at HomeFinder.com suggests finding out what kind of foreclosure you’re dealing with. Generally these kind of sales come in four different varieties: Short sales, auctions, real estate owned (REO), and government controlled sales.
Short sales provide an owner who hasn’t been regularly making mortgage payments to recoup some of the debt owed by selling the home below market value. At auction, the highest bidder takes the home, while those houses that failed to sell end up as REO properties. Finally, government controlled sales go through Fannie Mae, Freddie Mac, the Internal Revenue Service (IRS), and a variety of any other federal agencies.
2. Ask about “As-Is” Policies
Once you’ve figured out what kind of sale you’re dealing with, it’s time to delve into the particulars of a potential purchase. As Adam Verwymeren of Fox News explains, learning what the house needs, as well as what – if any – types of renovations or repairs come included in the sale price can help you steer clear of biting off more responsibility and work than you can chew.
3. Be Ready to Make a Competitive Offer
For those who are ready to start talking numbers, be wary of lowballing or pushing too hard for a “dream deal.” As the buyer, you do have a certain amount of leverage, but that doesn’t preclude you from making a realistic offer. If you’re not willing to work within the realm of a reasonable sale, don’t be surprised when the agency on the other side of the table brushes you off in favor of other potential suitors.
4. Patience Is a Virtue
Verwymeren goes on to note that once you’ve made your offer, understand that patience is most definitely an integral part of the process. Whether you’re waiting on a response from the seller or dealing with the frustration that comes with a rejected proposal, keeping your calm and focusing on the opportunities still in front of you is the best way to deal with the any bumps or stops along the way.
5. Get Your Side of the Equation together ASAP
Of course, there’s a lot you can do to help keep your patience from being tested unnecessarily. During a review of the foreclosure purchase process, the experts at Bank of America noted that getting all of your ducks in a row before you even start browsing these properties is well worth your time. Having a firm idea of what you can afford, what your lending provider will cover, and how much you’re willing to invest in the property all enhance the accuracy and relevancy of your search, while also cutting down on wasted effort.
6. Skipping a Home Inspection Is a Major Gamble
Considering the very nature of foreclosed homes – often being in disrepair or even abandoned – it’s safe to say that everyone interested in these properties enlists the services of a home inspector before signing on the dotted line, right? Unfortunately, a surprising number of buyers simply assume that everything is good to go after doing a quick walkthrough.
However, skipping the home inspection is like playing with fire. An issue hidden in the walls or deep within the foundation could lead to a series of major repairs just to make the home habitable, let alone aesthetically pleasing. For this reason, you’re much better off hiring a professional for an in-depth inspection and including these costs in your overall planning process.
7. Check the Title
One of the most overlooked tools at your disposal comes in the form of checking the title on the home in question. As the Team at Bank of America takes great care in pointing out, looking into this verified and accurate document can help avoid any legal hiccups involving unique or binding lien arrangements, as well as unexpected deed issues – especially when dealing with REO properties.
8. Be Ready for the Repair Bill
Looking a little bit farther on down the line, Bankrate.com’s Holden Lewis offers up a key piece of advice regarding the expenses that come with a foreclosed home. Essentially, when you start talking about repairs, your best bet is to hope for the best, budget for the worst, and expect the unexpected. Home inspections can definitely help alleviate most of the unknown, but dealing with properties that have been subject to everything from neglect to structural damage can lead to some strange situations and unforeseen circumstances.
9. Turnaround Time on a Sale Can Vary Dramatically
As far as the period after a sale goes, Lewis echoes the need for the patience you found in the search and inquiry phase of this process. Gauging timeframes and turnarounds when dealing with brokers, banks, and especially the government is far from an exact science and often prone to a myriad amount of variables. Sometimes the paperwork goes through the system like lightning; other times you’re in for a bit of a wait. However, knowing this ahead of time can help keep your expectations grounded in reality.
10. It Pays to Work with an Expert
Finally, and perhaps most importantly, is the fact that you don’t have to walk this path alone. While there’s nothing wrong with embracing the challenge of buying a foreclosure on your own, there’s also no shame in leaning on the years of experience and guidance offered by real estate experts and professionals.
These industry players have all the tools needed to navigate the sometimes tricky waters of purchasing a foreclosed home, so seeking peace of mind and a helping hand from a trusted source makes plenty of sense for most buyers. When paired up with the rest of what you’ve learned here, there’s nothing that can stop you taking a foreclosed property and turning it into something truly special.