Tips for Buying Bank Property
Mr. Sacaccio's viewpoint is an excerpt from an article he wrote advising interested people about how to go about participating in foreclosure sales and buying real estate-owned.
Foreclosure properties can be a terrific investment, or give homebuyers a much more affordable option than traditional properties. But they're not a way to get rich quick, and a foreclosure purchase needs to be approached in an educated, intelligent manner. Here are five tips to help you close a deal on a foreclosure property:
1. Learn about the different types of foreclosure properties and the foreclosure process.
There are three basic types of foreclosure properties, representing different stages in the foreclosure process: notice of default and notice of trustee, which are both pre-foreclosure properties; and real estate-owned, a foreclosure property which has been re-purchased by the bank. For most consumers, buying a pre-foreclosure property from a private homeowner is the best option. It's important that both the buyer and the seller see the situation as a win-win situation, in order to ensure a smooth process. In this case, the seller is able to get out from under a mortgage without destroying their credit rating, the lender is saved the time and expense of foreclosing on the property, and the buyer gets a below-market price on a home.
Foreclosure auction sales are typically the domain of the professional investor. These properties are formally in default and are sold to the highest bidder at an auction. Buyers are required to be physically present at the auction, and must pay 100% of the sale price in cash on the spot. Though foreclosure auctions can offer significant savings, they are not for the feint of heart or the uninformed. Unless the buyer is already familiar with a particular property, there is usually little time to examine it. And the buyer will be competing against professional investors - and sometimes even the lender - at the auction.
Once the lender officially reclaims a home, it becomes an REO property. While REO properties typically offer more time for evaluation and a more standard bank-managed transaction, their prices are usually very close to full retail market value.
2. Secure financing early.
It's important for a buyer to be pre-qualified before engaging in discussions with a seller. This ensures that the buyer is in a financial position to purchase the property, and is in the strongest possible position to negotiate. It's best to work with a lender who understands the foreclosure process, and can guide the buyer through certain steps, such as ensuring that a property is FHA-compliant. Another reason to consider pre-qualification is that not all lenders finance foreclosure properties. Having approved financing in-hand makes negotiations with both the seller and the lender easier, and may even make it possible for the buyer to simply cure the default and take over the existing loan to reduce loan processing fees.
3. Engage a real estate agent as a "buyers representative."
Most people hire a real estate agent to sell their home. These "seller's representatives" are charged with making the sale and negotiating the deal for their clients. "Buyers representatives" have the homebuyer's interests at heart, and are charged with finding the right property and negotiating the best price for their clients. Picking the right real estate agent will make a buyer's life much easier. There are agents who specialize in the foreclosure market, with specific experience in REO properties. Look for an agent with foreclosure transaction experience, as well as knowledge of local, regional and state laws. But it's also important to consider the agent's knowledge of the area, their ability to close a deal, and their access to other professionals (attorneys, lenders, mortgage and title professionals) to ensure that the buyer is in good hands.
4. Do your homework.
Stocks offer higher potential returns for investors than traditional savings programs, but are also riskier. Similarly, purchasing foreclosure properties is somewhat more risky than buying traditional real estate properties, but offer much higher potential savings. With the right examination and due diligence, buyers can significantly reduce the risks.
5. Make a realistic offer.
Despite what you may see on late-night cable TV, investing in foreclosure properties isn't a surefire "get rich quick" formula. Lenders aren't likely to give properties away, particularly in a real estate market where prices continue to rise. And homeowners in financial distress may be difficult to deal with, particularly early in the foreclosure process. The keys to a successful foreclosure property purchase are diligence and patience.
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