What You Need to Know Before Buying Foreclosure

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So you think you're getting a great deal.....

Almost everyone has heard about all the foreclosed homes up for sale all over the country, but purchasing a foreclosed home has a lot of risks that some buyers are unaware of. Of course the price may appear to be lower, but are you really getting the best deal?

Don't give in to the bargain-sale mentality.

Get a good deal on what you really want, or it just might end up hanging in your closet with the tags still attached.

It's all in the name. 

We have a reader board outside our office, and recently the message was changed to include "free repo list" Did it bring in people? You bet it did! We have probably 5 people per day come in and ask for that list.

I always ask the potential buyers if they kind of know what they're looking for, and most of them will give me an idea, like 3 bedroom home under $250,000 or a lakefront home, or a condo, or whatever. Then I will tell them that maybe one or two of the homes on the repo list meet their criteria, but I know a few others, and some are even better deals.

Do the future homeowners listen? The smart ones do, and we go out and look at houses, and find the perfect match. I have to tell you though, about half of the people that come into the office, asking for that list, are leaving with that list come hell or high-water, and it doesn't really matter if the homes are what they're looking for or not.

It's kind of like the old adage that you shouldn't buy something just because it's on sale, rather you should buy something that you want to buy when it's on sale so you get a good deal.

I think that's where a lot of people get fouled up. They see foreclosures as a "going out of business sale" and they start buying up the stuff that other people have already picked over.

Sure, you might get a home for $50,000 below what was owed on it, but what good does that do you when the property was $100,000 over-leveraged to begin with?

Why people are jumping on the foreclosure bandwagon 

Buying A House? Take Foreclosure Bus Tour

curated content from YouTube

Have you watched the video? 

The preceding video is an example of stories that are running all over the country. If you listen closely, though you'll realize that not everything they are saying makes good sense.

For example, tax assessments come out every few years in some areas and are based on the average selling prices of like properties. This means in a down market, the assessed value could be higher than the current market value. There's no instant equity if you are purchasing at market value.

This doesn't mean that you aren't getting a good deal, though. You just have to realize that you will need to wait for the market to straighten out, and start climbing again, before you can sell the home and make a profit. So you better want to live in the home, or be able to rent it in the meantime.

What does a good deal look like? 

Five things to consider when purchasing a foreclosed home.
  1. It is the best fit for you. This is the single most important thing to look for when buying a house. It doesn't matter if other homes look like they are less expensive, if you cannot live comfortably in a house, it is always over-priced.
  2. Location, location, location. It is always worth more to live in a better neighborhood.
  3. Has the home been loved? People care about their homes. If the roof starts to leak, they call the roofer. If they notice a gap behind the sink, they get out the caulk. If no one is doing these things for the home, what will you find when you move in? Does the price of the home reflect its condition?
  4. Is everything included? Owner occupied homes can be sold with perks, like lawnmowers and furniture. Foreclosed properties are often missing appliances, and in some cases plumbing or electrical fixtures. Is the house still a good price after you replace missing items?
  5. The home isn't "unique" in a bad way. Sometimes homes don't sell because they have a bad design or are just plain weird. Is the home less money because it is a great value, or is it in the bargain bin because it is irregular?

Have you ever purchased a Repo? 

If you've purchased a repo, or know someone who has, tell us about your experience, and talk with others who've done the same.

Are repos a good deal?

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Yes, I made a killing!

No, I wish I never met this house!

 

How do banks set their price? 

When a bank takes back an asset, the first thing they do is contact a local realtor to set up the property for an appraisal. The agent gets the home re-keyed and takes pictures of the property for the bank to record any damage, or personal property left in the house.

Then the agent provides a BPO, or a broker's price opinion based on the current market price of similar properties.

The bank also orders and appraisal of the property, and the appraiser gives their opinion of the value. The appraisal is very similar to the BPO, in fact, the appraiser and the realtor may use the same properties for comparison. This information is sent the the bank, and the bank sets the price based on these two recommendations.

You might need this if you're buying a foreclosure 

Almost all foreclosures have some type of deferred maintenance.
The Big Fix-Up: How to Renovate Your Home Without Losing Your Shirt

The Big Fix-Up: How to Renovate Your Home Without Losing Your Shirt

by: Stephen M. Pollan, Mark Levine

Amazon Price: (as of 11/29/2009) Buy Now

Check, check, check again

If there is anything that can be a loose end, it will probably fall on your shoulders....

Read the fine print! 

Banks are notorious for adding addenda to the standard contracts used in a home purchase transaction. These addenda basically relieve bank of many of the duties that normally fall on the seller.


This means that you have to be extra careful when going through the contract. Make sure that you understand all that is required of you, and more importantly, what is require of the seller.

Things to look into when buying a repo 

Some things you might want to look into when purchasing a foreclosed home.
  • Check with the utility companies, and make sure that the bills are not past due. - Sometimes the new owner of the property is responsible for any old balance when setting up new service.
  • Find out if there are any homeowner's associations that the property is a member of.- Again, new owners may responsible for bringing the account current.
  • Get a home inspection, or at least check the house out with someone who knows what they're doing.- Many repos have the power shutoff, so look for leaks caused by frozen pipes or other problems that can be attributed to a cold house.
  • Change the locks.- This is actually a good idea any time you buy a home. Many people had access to the property prior to your purchase, and you'll rest much easier knowing your the only one with a key.
  • Try to find out as much as you can about the property's history.- Bank's are not usually required to fill out seller disclosure statements, so it is a good idea to check with the neighbors or other sources to learn more about the home's past.

When You're Ready to Take the Plunge 

Ultimate Real Estate System
Buy Nothing Down, Realize Returns As High As 50% With Tax Lien Certificates And Discount Real Estate With Foreclosure Short Sales.
Foreclosure Profits Now
Discover How To Become Wealthy From Foreclosures Without Using Your Money or Credit...
Foreclosure Secrets Revealed
Real Estate Foreclosure Short Sale Course Reveals From Beginning To End How To Short Sale A Property. Often Advertised. Rarely Delivered.
REO Black Hole
$2800/house! Be The First To Pick Over These Packages Of Homes Dumped By Lenders. These Homes Are POST-foreclosure Homes And Sell For As Little As $2200 Each. 8-50 Homes Per Package. 15 To 20 Packages/mo. Toll Free Support.

Repos that we are working with 

These are a few of the foreclosed homes available in our area.

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