5 Tips for Buying a Foreclosed Home
The foreclosed home market can be a blessing to the wise Realtor®. Foreclosed homes are selling for less than half of their appraised value in 2007 allowing agents to place clients in twice the home they might have expected to own five years ago. Savvy buyers are targeting in on this opportunity, and with the following considerations all parties can approach the repossessed home with confidence.
To familiarize new buyers with the industry terms, there are three segments of the market for consideration:
- pre-foreclosures: Occurs after default and before auction
- trustee’s sales: This opportunity varies state to state
- lender-owned properties: (Also called REO - Real Estate Owned) occurs after a failed auction
With any of the three directions taken, the following five rules should apply.
1. Don't Apologize
It's tempting while considering foreclosed homes to focus on the loss of the person who left the home behind. Don't. There are many reasons homes will foreclose and not all of the properties you consider mean someone lost their home. Buying or following up on foreclosed property leads is a part of the industry and that's not likely to change for a while. It's your opportunity now to purchase, develop and possibly live in a property that would be otherwise empty.
2. Walk-Through versus Photos
Outdated photos are just as much a part of the home foreclosure market as any other segment. Under no circumstances should an agent or potential property owner make a purchase based on photos. Walk-through are a must for several reasons. Photos can:
- Neglect to show property abuses
- Reflect misleading images of size and quality
- Be manipulated to appear move-in ready
In addition to the walk-through, a private inspection should be on the agenda. While the banks may have inspectors they trust, agents also should have an inspector he or she trusts. The assigned inspector is going to consider safety and living conditions, but profit means minimal expense and even minimal cosmetic issues can be costly. In the case of a repossessed property, it is not unheard of that the persons who left the property behind might sabotage the next seller. Real estate agents should manage their own 'kick-the-tire' test as well as an additional inspection by someone who will be clear about the needs of the property. It doesn't mean it's an unreasonable purchase, but the more that can be considered in advance of the purchase, the better decisions can be made for both the seller and the dweller.
4. Financing and 203K
Financing may or may not include the possibility of FHA 203k funds. 203k Streamline mortgages allow up to $35,000 additional funds to renovate the property. Similar to an equity line these loans are held in managed accounts pending each renovation completed by licensed contractors. This additional option only increased the necessity of a thorough inspection. Issues found in the home specifically with regard to living conditions can be fixed quickly and without drawn out personal loan efforts. If an agent or buyer finds an FHA home that needs some work but would otherwise be the perfect property, look into the potential of a 203K addition.
Finally, it may go without saying, but financiers are facing their busiest times and often do not have the staff to keep up with spiky and unpredictable volumes. Not only should agents be patient when dealing with foreclosed homes, it is important to set the proper expectations with the potential buyers. Between short sales, repossessions, the dramatically reduced new building or simple refinancing, lenders have their hands full.
Bonus #6: HomePath and HomePath Renovation
One final option for buying a Fannie Mae-owned property is HomePath Financing and HomePath renovation if it needs fixing up. With low down payment requirements and low-priced homes, it's good to know about this option.
If you're looking into buying a foreclosed home for your next (or first) house, start with one of our eBooks about FHA 203k, HomePath or HomePath Renovation. Click the button below to see our full library of guides.
(creative commons photo credit)