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The Great Unknown in Buying Foreclosure Property

What’s Behind Door Number Two:

foreclosuresMake money quick! Invest pennies on the dollar! NOW is the time to buy up foreclosure properties! Your buyers see these sort of messages all the time, but is it really the right thing for them? Buying foreclosures can be a bit like gambling on a game show: What’s Behind Door Number Two?

Over the course of the last few years the foreclosure market has heated up and buyers have taken note. There are many investors that specialize in purchasing foreclosure properties, but should your client be one of them?

According to Bobbi Dempsey, co-author of ‘The Complete Idiot’s Guide to Buying Foreclosures’ (Alpha). You can buy a distressed property when it’s in one of the following phases:

* Pre-foreclosure – the homeowner still has control of the property.
* Auction sale – you may be bidding against lenders.
* Real estate-owned (REO) – a lender-owned property.
* Government-owned – potentially a slower process with more paperwork.

There are many points to consider, and to make sure your client considers, prior to purchasing a foreclosure property.

#1- What does your buyer’s credit look like? Buying foreclosure property can be more competitive than other homes as many investors and buyers hoping for a deal will be in the mix. These homes are not usually good for government loans (FHA or VA) due to their condition, so your buyer will need a higher downpayment. If your buyer hopes to be the winner, they need good credit.

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#2- Is your buyer prepared to take on an “as is” property and all the repairs and upgrades that entails? Foreclosed properties can have a variety of needed repairs and the lenders will seldom handle the largest ones. See #6.

#3- Is your buyer educated on fair market value? Foreclosure properties are hot right now and as such, the pool of potential buyers is deeper. Sometimes well priced foreclosures are heading into multiple bid situations. Ensure that your buyer knows what the top of fair market value for the property is so that they will not pay more than expected in a “bid off” on the home.

#4- Is your buyer looking to “flip” the property? If so they need to know current market value for the property both as it is AND after their expected repairs are done. They should have a working knowledge of how much average repairs cost and be able to execute the repairs quickly. It is helpful to give them a market analysis for the home in the condition it will be in when “flipped”.

#5- Understand your client’s timeline and educate them on how long purchasing a foreclosure can take. This is not your average six week sale time line, in many cases. Buying a foreclosure, depending on circumstances, can drag the time line out several weeks over a traditional sale.

#6- Ensure your buyer understands the inspection process and what it means to them. Often the home is winterized with no utilities. Sometimes the lender will de-winterize and turn on utilities for the purpose of inspections, but not always. Sometimes the lender will participate in repairs, but that is not typical.

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#7- In many states a title search is a mandated part of the closing, but not all. Ensure that your attorney or title company is thorough in researching the liens and title issues on a foreclosure. It stands to reason that a person that lost their home due to lack of payment was also unable to pay other bills…remind your buyer to do their research prior to the closing.

#8- Your buyers are searching the internet and finding foreclosures that are long gone. Sites like realtytrac.com are popular and useful, but sometimes out of date. I have had several investors call me on properties they “found online” only to research the home and discover it sold months before.

#9- Be sure your buyer is ready to MOVE FAST if they really want to buy a foreclosure.

#10- Prepare your buyer for EXTENSIVE paperwork. There is far more paperwork involved in a foreclosure purchase than a traditional one.

Counsel your buyer that the process of purchasing a foreclosure means more homework, patience and often a good measure of luck. That being said, it can be a terrific opportunity for the right buyers and a chance for both of you to have a hands on turn at correcting the housing market.

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Written By

Lesley offers 21 years experience in real estate, public speaking and training. Lesley has a degree in communications and was the recipient of an international award for coordinating media in real estate. In the course of her career Lesley has presented at international real estate conferences and state REALTOR associations, hosted a real estate television program, written articles for trade magazines and created marketing and PR plans for many individuals, companies and non-profits.

14 Comments

14 Comments

  1. Karen Frederick

    November 5, 2009 at 9:27 am

    What a helpful list you’ve compiled! Sometimes it can be hard to overcome the “media induced” expectations our buyers come to us with. I worked for two years as an assistant to a REO listing agent, so I’ve seen both sides extensively. I would only add two items that I’ve seen working with buyers in our local market. There are some REO properties that are move in ready and qualify for no down payment rural development loans. And if you’re looking to flip, some REO properties are deed restricted from being sold for too much or too soon.

  2. Lesley Lambert

    November 5, 2009 at 9:47 am

    Thanks for the comment and the additions, great points!

  3. Debbie Woodall

    November 5, 2009 at 3:13 pm

    The Great Unknown in Buying Foreclosure Property https://bit.ly/1eKjlG

  4. Craig and Joe

    November 5, 2009 at 4:29 pm

    The Great Unknown in Buying Foreclosure Property https://bit.ly/11cZwG

  5. John Foreman

    November 5, 2009 at 7:16 pm

    The Great Unknown in Buying Foreclosure Property https://bit.ly/4zCfR8

  6. Robert Prieto

    November 6, 2009 at 2:28 am

    The Great Unknown in Buying Foreclosure Property https://tinyurl.com/y9cdy5b

  7. Mark Brian

    November 6, 2009 at 2:25 pm

    The Great Unknown in Buying Foreclosure Property https://ow.ly/zCaL

  8. Lesley Lambert

    November 9, 2009 at 12:55 pm

    RT @agentgenius: @lesleylambert rocked it again this week The Great Unknown in Buying Foreclosure Property https://bit.ly/1Vgxiw (thanks!)

  9. Kathleen A. Scanlon

    November 10, 2009 at 1:17 am

    Distressed Property Primer: The Great Unknown in Buying Foreclosure Property https://bit.ly/1aGVMX #foreclosure #realestate

  10. IKE_DEVJI

    November 10, 2009 at 1:26 am

    Distressed Property Primer: The Great Unknown in Buying Foreclosure Property https://bit.ly/1aGVMX #foreclosure #realestate (via @kasesq94)

  11. Jacqueline

    November 10, 2009 at 2:51 am

    Distressed Property Primer: The Great Unknown in Buying Foreclosure Property https://bit.ly/1aGVMX #foreclosure #realestate RT @kasesq94

  12. Tony

    November 10, 2009 at 12:37 pm

    Pre-foreclosure can be called as a short sale too?
    Or short sale can be a good investment?

  13. GreenPrudence

    June 30, 2010 at 7:55 am

    RT @Eddie_Godshalk: The Great Unknown in Buying Foreclosure Property https://bit.ly/34zRwK [BLOG]

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