The sub-head, Couple dismiss Realtor’s warning, sees potential in foreclosure, probably made some of my colleagues cringe, but the Commercial Appeal real estate feature last Sunday reported an owner-occupant foreclosure purchase success story. My clients got a good deal on a solid house, and overcame the obstacles I had warned them about.
Many home buyers feel that foreclosed properties offer the best “deals” in real estate, but few are prepared to deal with those 2 little words, “as-is”. It is my duty as a representative of home buyers to point out the downside of any property purchase, as well as emphasizing the amenities and advising on value, financing, and the entire purchase process. I write this post from the point of view of an agent who represents owner-occupants and not investors.
Purchasing a foreclosure is different in many ways from a normal sale. If you are considering purchasing a foreclosure as an owner-occupant you need a agent who understands the processes for the different types of foreclosures: Bank, Fannie Mae, VA, HUD. They are all handled differently by the sellers.
Some basic points to discuss with your agent:
Financing – Things are simple if you are a cash buyer. You are not likely to be able to get a standard conventional or FHA mortgage on most foreclosed properties, generally because of condition issues. There is usually no negotiation on repairs, damage, or missing items, which underwriters require to be remedied before granting a loan. If you can qualify for an FHA loan, a good alternative is to look into the FHA 203K loan that allows you to finance required repairs and complete them after closing. Fannie Mae’ Home Path program also has some useful financing alternatives. Look into financing options BEFORE you start looking at foreclosures or any properties.
Value – Foreclosures often go on the market at prices comparable to recent normal sales. The longer they are on the market the lower the price and the more negotiable the seller usually becomes. If you are going to take an “as-is” property and go through the process, your agent needs to give you assurances that, indeed, you are getting a good deal.
The Offer – Different sellers have different processes for submitting offers. HUD has a blind bidding process with a strict time frame and rules; VA requires using its contract which offers the buyer very few rights. Agent experience is critical in submitting and following up on offers and guarding your rights.
Inspections – Once you negotiate a contract, you are responsible for all inspections on the property, including turning on utilities and turning them back off per seller specifications. Be sure and complete all inspections within the time period stated in the sales contract. Get the best inspectors you can find. After the inspections, it’s your choice to take it or leave it.
Contractors / Repair people – For a lot of folks, do-it-yourself only goes as far as painting. Your Realtor should be able to suggest some contractors, plumbers, electricians, etc. work with you as necessary. It is probably a good idea to get the to have a look during the inspection period to get an idea of costs you might be facing in the future.
To be very honest, most foreclosure transactions are pretty much of a hassle in one way or another. So my advice is Be Patient and Be Prepared!
- FAQ’s about HUD Properties (realtorkaera.wordpress.com)
- Bargain Hunters Can Make Themselves at Home in Foreclosure Segment of Metro Chicago Real Estate Market, Reports RE/MAX (prweb.com)
- Luxury home foreclosures a deal for well-heeled (planbmortgageblog.com)