Buying a foreclosed house is different from buying a typical house. One major pro is that most bank-owned homes are vacant which means your moving in process is sped up. But there are some things you should keep in mind. Here are five things to you should know about buying a foreclosed property.
First things first, find a broker and a lender
The first two things you have to do when buying a foreclosure are: find a broker who works directly with banks that own foreclosed homes and get preapproval from a lender.
Try dipping your toe in by browsing a site that lists foreclosed homes in your area. If you see the acronym REO, that means “real estate owned” (by a bank). That means the house has been through foreclosure and the lender is selling.
Engage a good broker
The goal of searching through foreclosure listings isn’t to find a house, it’s to find the right agent. Banks usually hire a few real estate brokers to handle their REO properties in any given market. In many cases, the buyer works directly with the bank’s broker instead of using a buyer’s agent. That means the commission doesn’t have to be split between two brokers.
This also means that these realtors have a long term relationship with these banks aka they know of listings that aren’t up yet. When you call to ask about a listing you’re interested in, ask them about listings that might be coming up as well.
To prove you’re serious, meet with the lender right before or after meeting with the agent.
Get a preapproval letter
Unless you’re paying cash you’ll need it. The letter basically just says how much you can borrow base don your credit score and income.
Many people mistakenly find the house first and then assume the’ll work out the financing alter. But the good deals go fast and you might not have time to work out your financing after you find it – you’ll need to do that first.
Also, if you’re assuming the bank selling the home will also finance the mortgage, don’t. That’s a totally separate transaction and should be considered as such. The people in the REO department aren’t loan officers, they’re getting rid of bad assets.
Pricing depends the market
You should look at other recent sale prices of comparable properties. Do you research and it will show through a competitive offer. Sometimes the bank will price a house low and it will get multiple offers over-askings. Sometimes its too high and you can come in lower. If you do your research you can’t get a bad deal.
Don’t expect a repair discount
Foreclosed houses are sold as-is, period. You can’t say “I want to buy the house but I need to do $15,000 worth of repairs and take that off the price.”
Look at the absorption rate for our product class aka check out how fast comparable houses are selling. If homes in your product class are selling quickly, come in at your highest and best unless the property has been on the market for a long time.
Again, it’s all about the research.
Connect with one of our agents today to discuss a market analysis and see what’s available in your market.