I have had several clients recently ask how to purchase a foreclosure property, and it is a great question. Oftentimes buyers do not differentiate between the purchase of a foreclosure, a pre-foreclosure, and a post-foreclosure. Let’s take a look at the different ways to purchase property in various stages of foreclosure:
1. Auction (the one true way to “buy a foreclosure”). If you want to buy a foreclosure this is the typical way to do so. Auctions are definitely tricky and you need to understand the process and what you may be getting into. There are several things you really need to understand before going to auction – for explanation read this article. I usually do not recommend auctions to my clients, as there are some caveats (oftentimes you cannot inspect the property first, you do not receive any disclosures, you may be bidding against experienced auction-goers, etc.) If you do decide to go to an auction make sure you are well prepared.
2. Short sales (aka pre-foreclosures). A large percentage of foreclosure-related sales are sold via short sales or lender owned listings. Purchasing a short sale can be a good way to get a better price on a home, but the buyer has to have no aversion to waiting to close escrow – sometimes as long as 3-6 months. The good thing about a short sale is that you will get to inspect the property, and usually you will be provided with disclosures from the owner. For more information on short sales and how they work, you can visit the short sale information tab on my website. I have also written numerous blogs about short sales.
3. Lender-owned/REO (aka post-foreclosures). REO (real estate owned) properties are those that are owned by the lenders who hold the note. They have already gone through the foreclosure process and are now active in the market. Most often, these properties are priced below comparable sold homes, and often the price is reduced every so often if the property has not sold. Post foreclosure properties can also be owned by “flippers,” who purchased the property at auction, did some work, and are reselling it for profit.
The good news then is that many of these homes can be purchased at a savings. The not so good news is that buyers will not likely receive disclosures, as the bank obviously never lived in the property. However, the purchase process is like that of a normal sale – buyers are able to view the property, obtain inspections and reports, and exercise due diligence to their satisfaction with the property condition.
What about all those foreclosure websites? Foreclosure websites can be helpful, but honestly if you have an experienced agent s/he can do the research for you, saving you money in subscriptions. If you are focusing on a particular neighborhood, your agent can research the neighborhood via the public records, and find out who is delinquent, and which properties have notices of default or auction dates filed. If the property is not yet listed as a short sale your agent can see if the owner is open to doing so, allowing you to write an offer and have it presented to the bank. You can also find out auction dates (which often get postponed – the new dates do not necessarily list on the public records, but your agent can do further research). If you are a skilled auction attendee and purchase a lot of foreclosed properties this way, subscribing to one of these sites is a good idea.
There is no magic bullet that will get you a screaming deal on any of these properties. But if you do your homework you can likely acquire nice home at a savings. If you are not afraid of the challenge these can all be great ways to buy your next home. Make sure you have an experienced agent to help you if you are buying a short sale or REO property. If you have any questions about foreclosure please do not hesitate to post them in the comment section below, or email me at Rachel@LaMarRealEstate.org.