Foreclosures: What You Need to Know
May 11, 2009 by Erica Jones Starkey · Leave a Comment
We get questions every day about buying foreclosure properties so here are some basics to help guide you. It is true that often you can save money by buying a foreclosure property, but before you do it is important to know the risks and enlist a qualified agent to assist you.
What is a Foreclosure?
A foreclosure, or REO (Real Estate Owned), is a property that has been vacated and is now owned by the bank. Generally, most properties are in some stage of disrepair and often need new carpet, paint, and appliances. Some can have much more significant issues such as leaks and structural damage. Expect that you will have to do minor to moderate renovation.
The Buying Process:
In this market the demand for foreclosure properties is on the rise. We are seeing many more multiple offer situations. Don’t expect to low ball the bank, most foreclosures are priced aggressively to receive multiple offers. Often to get a foreclosure you have to write over list. Don’t worry, you can still get a good deal. The foreclosures we deal with still sell at below comparable market prices.
What does As-Is mean?
Foreclosures are generally sold As-Is, meaning take it or leave it. Banks rarely provide property details that you would normally see when buying from a private seller. When submitting an offer, most banks will require you to sign an As-Is addendum that states you won’t be receiving standard disclosures and any issues found in the inspections are the responsibility of the buyer. Thus, it is extremely important to conduct thorough inspections on the property. These may include: property, roof, termite/pest, and sewer/water main reports. Your agent should have a list of experienced professionals they work with.
Getting a loan for an REO:
Getting preapproved for a loan is the most important step in your foreclosure search. You cannot submit an offer without one. It is critical that you talk to your mortgage broker to get detailed information on loan programs. Most loans are either FHA or conventional loans. In addition, several banks require you to get preapproved through them before you make an offer on their property. It’s important to know this because it can delay making an offer and you will have to go through the application process again.
What is the 203k loan?
This is a program offered through FHA that allows the borrower to qualify for up to $35,000 to fix up a home in need of repair. There are a select number of brokers who are qualified to offer this program and there are certain restrictions so it is important to talk to your lender about it up front. It is a great program and we’ve had several clients use this with their foreclosure purchases.
Why do I need to work with someone who has experience with REOs?
Among other reasons,
1. Banks are picky and when submitting an offer you generally get one shot to make an impression. We have identified key items banks are looking for in offers that when not included can lead to having your offer rejected.
2. Banks like Realtors they know can close a purchase, we have a reputation for closing deals and that reduces the risk for the bank.
3. Depending on the bank that owns the property, it can be difficult to negotiate money for repairs, etc. after your offer has been accepted. So you need to have someone to advise you on what to look for and the potential risks.
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