According to the Center For Housing Policy, 1 in 10 mortgages are seriously delinquent. If the delinquent mortgages are not paid current, then the seller’s lender eventually forecloses on the home and gains title to the property, therefore becoming the new owner and the property becomes an REO (Real Estate Owned) foreclosed property. In unprecedented fashion, these foreclosed homes are available on the market for sale and buyers have a huge opportunity to make a purchase of a lifetime. Investors as wells as buyers who are purchasing their primary residences are taking advantage of the vast number of foreclosed homes for sale buying them at moderate to huge discounts. Buying a foreclosure has its risks and the home buying process is different. Either you or someone you know may be interested in buying a foreclosure. Read this article to see how a foreclosure purchase is different than a typical home purchase. You will also get tips on how to safely navigate your way to buying a great foreclosure.
When I work with a buyer who is interested in buying a foreclosure, one of the first questions they ask is, “How much of a discount can I get?” Well, it depends on the home. The properties that are move-in or almost move in ready typically sell for 5%-10% below market value. It is a misconception to think the selling bank will accept pennies on the dollar for these move-in ready homes. Other buyers will snatch these great homes for themselves before it gets that low. But the homes that need repairs can sell for 30%, 40% or even more below market value depending on how much repairs are necessary.
• Hire a Realtor who is a foreclosure expert- The biggest misconception in real estate is that it’s a smart idea to work with several realtors thinking that it’s much better to have multiple agents working for you. Imagine asking 3 different attorneys to work for you and you say to them, "you do the research to win my case and if at the end of the day I like the work you did, then I'll hire you as my attorney." Do you think any of them will actually put in the dedication to possibly win your case? Or how about asking 3 cake makers to bake the most beautiful cake for your wedding day and the best one gets the business. You get my point. Every agent has access to the same property listings so there is no benefit to working with multiple agents. Interview, then hire one agent to work with from beginning to end of the home buying search. That's the only true way to get an agent to work hard for you. During the interview process, ask them how many foreclosures they have worked with, what the differences are between a typical home purchase and the purchase of a foreclosure, and try to get a feel for whether or not the real estate agent really understands the ins and outs of buying a foreclosure.
• As with any home purchase, you should get preapproved for a loan prior to even looking at houses. If you happen to find a foreclosure home that needs repairs, there are loan programs available where you can finance the repairs as part of your home loan. Plus, the REO company will entertain paying buyers’ closing costs if the offer is acceptable to their bottom line. An offer cannot get submitted without a pre-approval letter and a prudent realtor won’t work with buyers unless they are preapproved, so this might as well be your first step.
• Location, location, location- Everyone knows that this is the first rule of real estate. Make sure you like the location of the home because one day either near or in the future, you will have to sell your property. If you don’t like the location, chances are that other buyers won’t either. If you find a home that’s in poor condition but it’s in a great location, just make a low enough offer where it makes sense for you to buy it.
• Look For Repairs-During your showings, look at the home from a “whole picture” standpoint. Even homes that look move-in ready could have underlying repairs such as busted plumbing due to the house sitting vacant over the winter. When you drive up to the home, look at the exterior, roof, and driveway. When viewing the interior, look at the flooring, windows, plumbing, water seepage leaks, etc. Makes notes on the repairs or better yet, bring a contractor along to get their opinion regarding the cost of repairs. You will need to know this number in order to make an intelligent offer. Bring a flashlight, a lot of foreclosures have winterized the home and have turned off all of the utilities.
• Make The Offer- Most listing agents who sell foreclosed homes don’t work directly with the selling bank. The agents work with a third party employed by the bank called Asset Management Companies or REO companies who negotiate the sale of the property on the bank’s behalf. After writing up the initial offer (A proof of funds or loan-preapproval letter is required), there can be a delay of 3-5 days before you get a response. A typical non-foreclosure offer takes only 1 day to get a response. The first response to your offer could will be at or near, full-price, especially if the house is new to the market. The longer the house has been sitting on the market unsold, the lower the REO company is willing to accept. If other offers come in during your waiting period, the listing agent will typically ask all buyers to submit their “highest and best” offer. The winning offer will then need to sign the bank’s “Special” addendums.
• Special Bank Addendums-What’s so “Special” about the bank’s addendums is that if the buyer doesn’t sign them, they won’t get the house. Almost all REO companies have “AS IS” addendums to be signed typically once the offer has been accepted or at the time the offer is submitted. REO companies do not allow you to make any changes to these addendums. The addendums are multiple pages and will typically state that there are penalty charges if the buyer doesn’t close on time, that the homes is sold as-is with no repairs, no termite treatment, the house might have mold, etc. Inspections are typically allowed, but the buyer pays for de-winterization and re-winterization if needed. Make sure your realtor puts in the original contract that if the buyer is not satisfied with the outcome of the home inspection report, that the buyer can cancel the contract and the earnest deposit is to be fully refundable.
If you calculate the cost of repairs and get an offer accepted low enough to have instant equity, you can be in an advantageous position when you resell the home at a later point. Some home owners have a strategy to buy a foreclosure, live there a couple years, resell the property at a profit, and then start the process all over again. The process to buy a foreclosure is definitely different compared to purchasing the typical way, but if done correctly, it could be one of the best purchasing decisions you ever made. For more information or to start the process to buy a foreclosed property in the Omaha NE Metro area, contact Heeran Workman, real estate agent, at (402) 707-7878 today. Sign up to receive foreclosure listings by going to http://www.heeransthekey.com/
By Heeran Workman, MBA
About Heeran's Home Team:
Heeran's Home Team with RE/MAX PLATINUM Realty is one of Omaha, Nebraska's top real estate team helping buyers and sellers with their real estate needs. We sell a home every 2.5 days! The average agent sells less than 4 houses a year. Heeran Workman specializes in the Omaha Metro Area including Millard, Gretna, Bellevue, Bennington, Elkhorn, District 66, Papillion, La Vista, and Ralston.
Heeran Workman's Profile:
- Top 1% In The Industry
- Full-Time Real Estate Entrepreneur
- Creighton University Alumni
**Bachelors Degree in Accounting Dec. 1997
**Masters Degree in IT May 2000
**MBA December 2000
- 2012 Omaha Area Board of Realtor's Top Producer's Panel Expert
- 2012 Women's Council of Realtor's Top Producer's Panel Expert
- Realtor Licensed in Nebraska Since 2003
- Active Omaha Real Estate Investor
- National Association of Realtors
- Member of the Institute of Luxury Home Marketing
- 10 Years Foreclosure Experience
- Omaha Area Board of Realtors
Services For Omaha Metro Area Sellers:
** 3 Commission Plans To Choose From
** Creative & Aggressive Marketing For Your Home
** Free Foreclosure Shortsale Listings
** 1% For Sale By Owner Facilitation
Services For Omaha Metro Area Buyers:
** Free 24HR Omaha Homes For Sale Market Watch
** Free "Omaha Hot Forelclosure" Home Lists
** Free Representation - Paid By Sellers
** New Construction Representation
