The past three years have been hard on the real estate market. Foreclosures are at an all time high. Not since the Great Depression have so many people lost their home. This has created one of the most incredible buying opportunities in real estate in many, many years. Foreclosures are a great opportunity for home owners to obtain “INSTANT EQUITY”. Though most foreclosures are distressed, they do offer a chance to “BUY LOW & SELL HIGH”. As a Realtor specializing in foreclosure properties, I help investors, first time home buyers or folks just wanting to move up to a bigger & better home find GREAT DEALS in foreclosures.
Foreclosures Can Be A Great Deal for "Instant Equity"
I will briefly describe how the process works. Once a home owner goes into default on his mortgage, the property is sold at the local courthouse. If the high bid is not acceptable, the property reverts back to the bank and becomes an REO (Real Estate Owned by the bank). Once the bank has reclaimed the home, they usually hire a real estate agent to help them market & sell the property.
Most foreclosures are sold BELOW MARKET VALUE, because they are sold “AS IS”. They can go for LESS than list price and often do, but the LONGER the property has been on the market, the BETTER chance you have of getting a GREAT DEAL. Because most REO properties are distressed, the buyer, in most cases, must have a vision of what the home can potentially become. The worse condition, the better opportunity for “BUY LOW & SELL HIGH”
Here are a 5 steps you should take to find awesome foreclosure deals.
1. YOU MUST BE PRE-QUALIFIED FOR A LOAN OR HAVE PROOF OF FUNDS if you plan to make a CASH offer. To get your PRE-QUAL letter you will need a few things
* W-2 forms full 1040 tax forms if self employed).
* Paystub’s to cover a full one-month period.
* Your most current bank statements for 2 consecutive months.
* Signed application forms and credit report authorization.
From my experience, banks are more likely to accept a CASH offer, even if it is SLIGHTLY LOWER than a FINANCED OFFER.
2. FIND A GOOD LENDER . As I mentioned earlier, most foreclosures are distressed, so if you are financing your purchase, your lender must know you are buying a foreclosure ESPECIALLY IF THE HOME IS DISTRESSED. BANKS, MORTGAGE BROKERS, PRIVATE FUNDS or even HARD MONEY LENDERS can be sources of capital.
3. FIND A REALTOR WHO SPECIALIZES IN FORECLOSURE LISTINGS. Buying a foreclosure can be a little tricky. If you get in a multiple bid situation and your Realtor is NOT familiar with the process, you could miss out on a great deal. A Realtor in the know, can provide invaluable tips to help you GET THE PROPERTY YOU WANT AT THE PRICE YOU WANT. He or she should have FORECLOSURE LISTS, which they can provide by EMAIL. This will SAVE YOU GREAT DEALS OF TIME instead of doing manual searches. He/She should know the local market and be able to provide recently SOLD COMPS or RENTAL ESTIMATES.
4. BE ABLE TO CLOSE FAST! Banks like for you to get things done quick (though they don’t always return the favor!). If you can close in 15 days instead of 30, you stand a better chance of getting your GREAT DEAL. Once your offer is ACCEPTED, there is a minimum EARNEST MONEY DEPOSIT (EMD) of $500. You must have a copy of your EMD check to make the offer, and once it is accepted you have 3 banking days to deposit with whoever plans to hold it. Most of the time the CLOSING ATTORNEY or LIST AGENT will hold the EMD.
5. DEVELOP A LIST OF CONTRACTORS WHO CAN PROVIDE INSPECTIONS/REPAIR ESTIMATES. Most contractors will provide a FREE REPAIR ESTIMATE, which can help you determine your OFFER PRICE. If you don’t know honest, respectable contractors, you can find most of what you need at ANGIE’S LIST www.angieslist.com). This site provides reviews from people who have actually used the contractor, so you can have peace of mind knowing the person/company is good to deal with or not. A good Realtor® should be able to provide a list of contractors to you as well.
Once your offer has been accepted, the bank will have an addendum to the “Offer to Purchase” contract. I would suggest a real estate attorney look this over and explain any “gotchas”. If you agree to “close” with the attorney, most will do this for no additional charge.
After both parties have signed the “Offer to Purchase” and Addendum, it becomes a binding contract. In most cases, you will now have a 10-15 day INSPECTION PERIOD, which is basically a “FREE LOOK”. During this time you can have an INSPECTION done on the property to see if you really want to purchase it. ALWAYS have a LICENSED HOME INSPECTOR complete an inspection during this time to find out if there are any serious issues with the home. As I said earlier, most foreclosures are “AS IS”, so the bank does not do any repairs. However, if you find something that is wrong during the inspection, you can make a repair request. If the bank does not agree to do the repair, you can terminate the contract, and get your EARNEST MONEY DEPOSIT back.
There can be other issues to buying a foreclosure, but this will give you a foundation on how the process works.
ABOUT THE AUTHOR: Tony Green is an experienced Realtor® specializing in Bank Foreclosures. Visit www.TriadNCHomesForSale.com and request to be added to his FREE email list of local REO properties in the Piedmont Triad of NC. He can also be reached at (336) 462-9544.
