You may be drawn to distressed properties. After all, the No. 1 reason to buy a foreclosure is the potential for a good bargain. Indeed, discounts often can range from to 20 or 40 percent off on a short sale or foreclosure compared to a sales price of a nondistressed home.
Despite the big bargains, you need to tread carefully before jumping in. Here are some tips in buying a foreclosure based in a recent article at Business Insider.
- Beginners may want to focus on REOs. New buyers may want to avoid short sales, which often come with lengthy negotiations, or foreclosure auctions that often require all-cash payments. On the other hand, REOs can be similar to a traditional home sale in some ways and can offer some of the biggest bargains. A bank isn’t emotionally attached to a REO; it’s just looking to recoup as much of its losses as possible, so the lender is often more willing to capitulate on price.
- Inspect properties carefully. Many distressed properties are sold “as is” and can come with a host of problems if buyers aren’t careful. You should hire a home inspector to inspect the home prior to any purchase. You will then have a list of any potential problems with the home, along with estimates for costs of repair that you can use to possibly negotiate a lower price.
- Set up financing in advance. Many short sales and REOs are actually attracting multiple offers these days, so you should set up mortgage financing in advance by getting pre-approved for a loan before looking at properties. You should also check your credit score, fix any credit problems and set aside enough cash for a down payment.
- Don’t expect appreciation right away. Have your local real estate agent give you information about the local foreclosure scene. Understand how much properties are selling for, how quickly they’re moving and how much a distressed home’s value will likely rise in the future. It’s important to not make the mistake of counting on any major price appreciation in the near term. We’re still in a depressed market, and we’re probably not going to see home prices appreciate much for quite some time.
Source: “Here Are Five Things You Should Always do if You’re Buying a Foreclosed House,” Business Insider (Oct. 31, 2011)