How To Buy A Foreclosed Home

For those with cash in hand or adequate credit to obtain a mortgage the time is right to buy a foreclosed home. While the foreclosure process seems complex, buying a foreclosed home can be pared down easy steps. The hardest part is in actually edging out competing buyers by offering to buy at a price and on terms that are attractive to the bank.

1. Determine what property you want to buy

You can easily find foreclosed properties that are up for sale from listing agents. The problem is, which one do you want to buy? Different foreclosed homes come in different features and conditions. It is important for you to know which one you would be comfortable buying.

2. Ask for the number of offers

If there are no offers for the home, you can offer a price less than the asking price. If there are over two offers, you might want to offer something higher than the asking price. If you are competing against 20 other offers, you will definitely need to increase your buying price in order to be considered. Some of the 20 offers might be cash offers, if you are using financing, you have to offer higher than the cash offers. Remember, banks love cash offers.

3. Submit your lender’s preapproval letter with your bidding price

In choosing a lender to finance your purchase, it is always better to choose the same lender who owns the property. In general, banks do not trust preapproval letters from other banks.

4. Don’t ask for repairs and/or inspections at offer

Banks typically do not agree to do any repairs during the offer stage. If you find a problem at the property during inspection, negotiate for the bank to repair the property AFTER your offer has been accepted.

5. Shorten your inspection period

Find out how many days other buyers are asking as inspection period. If you find that they are asking for a two-week inspection period, ask for ten days. That way, the bank will see you as a serious buyer.

6. Offer to Split Fees

The bank will definitely find your offer more enticing if you offer to split fees with them, like the title insurance. Banks typically negotiate for discounts on the title insurance. Let the bank know that you are willing to share in the cost transferring property.

Buying Foreclosures

There are many real estate investors who want to buy underpriced foreclosures, hoping to hit gold by re-selling these properties at higher prices than they were bought for. When the price of a foreclosed home is cents on the dollar, there are invariably many offers for that property.

That said, if you are on the prowl for properties to buy and sell, take note that you could be facing stiff competition for bank-owned homes. In Sacramento, California, it’s typical for banks to get 15 to 20 offers for a foreclosed home. The bank either selects two buyers and asks them for their highest and final offer, or selects the best offer the onset.

As an investor, what you want to do is to make your offer stand out above the rest and be the winning offer by offering the best right price and terms. Here are some tips on how to do this:

1) Research the property’s history

Do a little research and find out the bank’s purchase price on the property and the amount of the loan that was once tied to the now foreclosed home. You can determine a price that the bank will accept between the original mortgage balance and the sale price of the property at foreclosure.

2) Research comparable sales

The market value of the foreclosed home matters more than its list price. Chances are, competing offers on the property will offer more than the list price. If you want to determine the market value of a property, look at the last three months of comparable sales in the neighborhood where your prospective property is located. Only look at the deeds of houses that closely matches the repossessed home in terms of floor area, number of bedrooms, bathrooms, amenities and condition.

3) Ask the listing agent of the foreclosed home

Some listing agents will share information on the acceptable price of a foreclosed property, others will not. But it really won’t hurt to ask. If you get a “no”, ask the listing agent (of the property you are eyeing) for its pricing principles to repossessed homes. Since they deal in volume, listing agents typically apply the same principles to all the properties in their list.

You can also pull out the history of the agent’s listings and determine the ratio of the list price and the sales price. If most of the past listing sold for 5% over the list price, you may need to offer the buying price at 6% over the list price.