Buying a foreclosure can save you a lot of money vs. market values but keep in mind the process is different than working with a traditional seller. You will need extra flexibility, patience and stamina to make it through the process. Some key things that are different in the process to consider…
1) Foreclosure properties are most often priced below the market so buying one for the asking price is great, as many buyers need to over above what is asked. You are still often buying a property at 10%+ below similar traditional homes.
2) The offer process is at least two-fold as lenders/investors have their own docs your realtor needs to learn and complete.
- For example, to buy a HUD Home your realtor and his/her broker need to be a registered HUD agent which can take time to make sure he/she is registered before you start your search. The initial paperwork will feel redundant with the additional paperwork that follows if they accept your offer.
- Other sellers also have their own forms that are typically loaded to the MLS as supplements and need to be completed
- BOA properties will require a pre-approval from a BOA lender, but you don’t have to use BOA for the loan
- Just realize it is a necessary part of the process so you need to be flexible.
3) Time is of the essence. Many foreclosures list and sell within 30 days. With this in mind you want to see and make an offer ASAP. Often times the seller is open to offers for a few days and then takes a few days to review offers.
- Many foreclosures get multiple offers which reduces your chances of getting the property, so you may end up losing a few times before you get a property
- It is not unusual for the seller to counter offer the best offer; which adds to the time involved
- HUD homes are listed for the FHA appraised value so if you are buying FHA and competing against conventional/cash buyers you will have a harder time winning
- Make sure your close date is flexible – within 45 days of acceptance vs a firm date as the back and forth can eat up a couple of weeks
- This is where patience is needed.
4) If awarded, you most likely are having an inspection. Inspections are strongly recommended as the properties haven’t been lived in for some time usually and no seller information is passed along. The seller is typically responsible for dewinterizing (if in a climate that requires it) the property. Typically they want a minimum of 48 hours prior to the inspection for this to occur and depending upon the season and their process the property will be winterized after the inspection. Sometimes issues are found when they try to dewinterize which need to be addressed so you and your inspector need to be flexible with the seller during this time.
5) Stay in close contact with your lender throughout the process to ensure the close date can be achieved. In the final PA docs the seller will typically specify a close deadline and a per diem fee charged to the buyers if the closing is delayed by the buyers. Be prepared for what feels like a double standard since if the seller delays the closing they do not pay you…
STAMINA – If you & your Realtor can hang in there with your search and offers and understand the market you will likely be rewarded with a property that is a great value compared to the overall market.