In many cases, only one real estate agent is involved. The seller wants a preapproval letter from a lender before accepting an offer. There often is little, if any, room for negotiation. The home comes as is, and it's up to the buyer to pay for repairs.
On the upside, most bank-owned homes are vacant, which can speed up the process of moving in.
Buying a foreclosure is definitely a bit of a grind. It's not easy. You're getting fantastic pricing, but sometimes it takes going through a lot of houses and writing a lot of offers to get the home you want.
Before you begin the house hunt
The first two steps in buying a foreclosure should happen almost simultaneously: Find a real estate broker who works directly with banks that own foreclosed homes and get a preapproval from a lender.
You also can look at a local real estate Web site that lets you filter the results to see only foreclosures. You might find the acronym REO, which means “real estate owned" (owned by a bank, that is). This signifies that a home has been through foreclosure and the lender is selling it.
The goal of combing through foreclosure listings is not to find a house; it's to find an agent. Banks usually hire one or a few real estate brokers to handle their REO properties in a market. In a lot of cases, the buyer works directly with the bank's broker instead of using a buyer's agent. That way, the commission doesn't have to be split between two brokers.
Unless you plan to pay cash, you'll need a recent preapproval letter from a lender. The letter will describe how much money you can borrow, based upon the lender's assessment of your credit score and income.
The problem is buyers want to find the house first, and then they think they'll work out the financing. The problem is the really good deals on these bank-owned, they go quick - and the buyer doesn't necessarily have time to try to work out the financing afterward. They need to work that out first.
First-time buyers make the mistake of assuming that the bank selling the home will also finance the mortgage as part of the deal. Don't expect to get financing from the bank that foreclosed on it. That's a totally separate transaction, and they view it that way. The people in the (bank's) REO department are not loan officers. They are getting rid of bad assets.
Pricing is not a slam-dunk
There's no rule of thumb on what the bank's bottom line is on price. Just as with any other real-estate purchase, you have to look at the recent sales prices of comparable properties, or “comps. "
You really have to look at the comps in today's current market conditions and write a competitive offer based on that. Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours. Sometimes it's priced too high, and you can come in lower.
Keep in mind that foreclosed houses generally are sold as is. That means that you shouldn't expect to get a discount to compensate for repairs.
If homes in your product class are selling swiftly, the best advice on a bank-owned property is to come in at your highest and best, unless the property has been sitting on the market forever with no activity. If you're going to be upset because you would have gone $5,000 more, but you lost the property, just bid the higher price in the first place.
Because repairs are almost inevitable with foreclosed houses, I recommend getting to know experts who can assess and repair damage from pests, mold and leaks. You should assume that the air conditioning needs to be fixed, and possibly the heating system, too. It all sounds daunting. But at least you don't have to wait for the owner to move out of the house.
If you are looking for foreclosures in Livingston County, Michigan , the expert staff at Century 21 Lady of the Lakes can answer all of your questions.
Century 21 Lady of the Lakes is Livingston County’s leader in recreational style living. We serve all of your real estate needs. If you are interested in lakefront living, golf course property, access to hiking trails, canoeing, hunting, parks, or any other outdoor recreation, we can find your ideal home.