Although foreclosures have seen a recent dip in the market, a valuable return can still be made when investing in them and those interested in purchasing foreclosures should know the smart way to buy them. Whether you are buying a foreclosed house for your personal use or as a real estate investment you should know how to get the best value for the property. There are typically three stages at which one can buy a property during the foreclosure process. The first stage is known as a pre-foreclosure. This is when an individual can buy a property before the foreclosure is officially finalized and the homeowner is forced out. The second option is buying at a public auction. At this stage of the foreclosure the property has been sent to the county where a neutral third party, such as a trustee, will carry out the public auction. The third option is to buy post foreclosure. This occurs when there is not a higher bid than the default amount during the auction so the property is acquired by a lender. If a bank takes the property to resell they will list it with a real estate agency, this is then known as an REO, or Real Estate Owned.
Now, here are a few simple tips for getting the best value for a house during the foreclosure process.
ADDED RISK IF PROPERTY HAS NOT BEEN SEEN
A property is still owned by the homeowner up until the point of auction. Thus, when biding on a foreclosure at auction, you typically cannot go inside the house to examine its’ condition. This can potentially be an added risk. Owners who have had their houses foreclosed couldn’t keep up with their payments so they most likely couldn’t afford to upkeep their home. A foreclosed house can have severe water damage, ripped out carpeting, holes in the walls, or be stripped of kitchen appliances. These, and any other unexpected expense, are now costs the new homeowner will have to incur. Therefore, unless you have had the opportunity to see the interior of the home, it is advised that you set your maximum bid amount based on the assumption that there is damage that will need to repaired.
FIND OUT IF THERE ARE ANY LIENS ON THE PROPERTY
When buying a foreclosure, unexpected liens can arise that are not recorded or that you simply are not aware of. The easiest and safest way to be sure if there are liens on a property is to contact a title search company to perform a title search on the property for you. Another option would be to do some investigating of your own by reviewing the property records at the county recorder, clerk, or assessor’s office. Often time’s real estate agents are not fully aware of all liens so you should be sure to check, whether it be through a professional title abstractor or done yourself, before buying a home. To learn which liens are often unknown to real estate agents watch this short video, 8 Most Common Hidden Liens on a Property. If you are going to perform the liens search on your own check out this short tutorial for details, How to Search For Free Lien Records for Real Estate.
ESTIMATE REPAIR COSTS
Foreclosures tend to require extensive renovation and are generally sold as is so you should not expect a discount for repairs. Before purchasing a foreclosed home, it is a good idea to hire a home inspector to estimate the costs required for the repairs. Keep the estimated costs you receive from the inspector in mind and even add an extra 10% to your repair budget. This will help you stay closely within your overall budget. Again, this is not always possible for a home in foreclosure and your maximum bid should reflect your ability to bear this risk.
KNOW THE SALES PRICES OF COMPARABLE HOUSES IN THE AREA
When purchasing any real estate you should look at comparable properties, aka comps, and their recent sales prices. Robert Jenson, owner and founder of the Jenson Group at RE/MAX Central in Las Vegas says people 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. A lot of times, buyers will come to me and say, ‘We want to write offers for half price.’ It just doesn’t work that way." By researching what similar homes are selling for at market value, you will be able to establish an accurate range of prices to base an offer or bid on.