Key tips to buying a foreclosure
The housing market is full of foreclosures, and that can mean big savings for savvy homebuyers. Purchasing a foreclosure, however, is a different game from regular home sale. Understanding the bank-owned market can help buyers get a leg up on their competition and get the home of their dreams, for less.
If you are thinking of looking for a foreclosure, do your homework in advance. Know what you are looking for, what you can accept, and what is unacceptable in a home in terms of features, repairs needed, and other concerns. Canvas desirable neighborhoods, even if there are no properties listed there yet, so that if a home comes on the market you can be first to act. Searching foreclosures should not be an exploratory experience. Prepared homebuyers are better able to assess a property and quickly decide if they want to make an offer or not. A long decision period will cost a homebuyer precious time, potentially losing the property to a faster bidder or allowing the competition time to drive up the price, while rushing in despite uncertainty may leave a buyer with a property they regret.
Any bank-owned property has a history, one that inevitably includes lost money. Banks want to make money and minimize their losses. Buyers can take advantage of that for deals, but pushing too hard or too soon will get a bid rejected. Banks price foreclosures for what they think its worth, what they think they can get, or what they think will generate big interest. Do your homework to determine the true value of a property, both to determine what you should offer, and to determine what you shouldn’t pay. A bank won’t entertain a lowball offer on a property that is fresh to the market, but longstanding properties are likely to see price reductions for every month they sit unsold. The longer a property waits, the more likely a lower offer may be accepted, but understand that waiting could let a faster buyer through the door.
A property listed very low might be a ploy to lure in buyers, and spark a bidding war to bring up the price. Even then it could be a deal, but bidding wars are complicated, time-consuming, and risky. Making an appropriate offer early on that is higher than the listed price can avoid a war and win the home. Other ways out of a bidding war are all about the money. Having a significant down payment or paying cash can bump other offers off the table. Mortgages take time to process, but a cash deal can close in a matter of days. Many cash buyers are borrowing from family and friends, and then work out a mortgage afterward. Just be sure you can get the mortgage loan when you need it. Outside of a bidding war, a quick cash closing can be used to leverage a discount.
When crafting a foreclosure bid, keep it simple. Bank-owned properties are typically sold as-is, so trying to get them to do a list of repairs or other stipulations is unrealistic and unwise. Make your bid clean and uncomplicated, and work with your realtor to offer the right price. Always come in to a bid with a mortgage approval or cash on hand. Unprepared financing leaves openings for prepare bidders to get priority; even lower bids with better financing may be accepted over an offer without pre-approved financial backing.
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About David Goldstein — David Goldstein is an Owner and Founding Partner of Express Schools, LLC. which operates online education providers Real Estate Express, Insurance License Express and License Tutor. Follow him on Twitter.