A huge percentage of the existing home sales in the Phoenix area these days are foreclosures. Some need heavy-duty repair work, others are practically move-in ready. Some are in blighted inner-city neighborhoods. Others are in master-planned communities with swimming pools, tennis courts and golf courses.
Wherever you look, whatever your price range, there are great deals to be found in foreclosed (often called bank-owned, or REO) homes right now. But it will pay to know what you're getting yourself into -- to look before you leap, if you will. Because the fact is that buying a home that has been repossessed by the bank is different -- even if not completely dissimilar -- from buying a home from the owners who are relocating, moving up, whatever.
When you buy a foreclosure, you'll have to play by slightly different rules. And, you'll have to be even more vigilant about the inspection -- unfortunately, foreclosed homes are often damaged but are nearly always sold by the bank "as is."
So here are some tips to make your bank-owned home buying experience a great one:
1. There are a number of assistance programs designed to help homebuyers purchase foreclosed properties. The last time I checked, programs were offered by the state, by Maricopa County and by the cities of Phoenix and Chandler.
2. A home auction can be a great way to find a foreclosed home at a good price. But know that while the Arizona Department of Real Estate does require home-auction companies to have a real estate license, it doesn't regulate the auction process itself, so even manipulative tactics are not illegal (though "frowned upon" by above-board auction companies, according to the Republic article).
If you're thinking about bidding on a home at auction, consider these six tips first. As I always say, Knowledge is Power!
- Auction Tip #1: Read the Rules
- Auction Tip #2: Do Your Homework First
- Auction Tip #3: Come With Financing
- Auction Tip #4: If It Looks Too Good To Be True, It Probably Is
- Auction Tip #6: Caveat Emptor
3. Know your market. If you don't already live where you plan to invest, make sure you get to know your investment market well - what neighborhoods you should stay away from, where great hidden deals might be, where the hottest new development is, etc.
4. Develop an investment strategy. Foreclosure investing is like any other type of real estate investing - develop a strategy for what you want to accomplish, the risks you are willing to take, and how long you plan to be investing and then stick to that strategy.
5. Develop your best practices. There are a lot of foreclosure buying techniques out there. Decide which is best for you, given your investment strategy.
6. Be a bit skeptical. Just because a home is in foreclosure doesn't mean it's automatically a good deal.
7. Ask for help. Foreclosure investing takes a lot of work. Invest in the help of a trustworthy team.
8. Make friends with mortgage lenders. Often, you'll get the best deal if you can negotiate a good purchase price with the seller and get the lender to forgive a portion of the debt (the difference between the sales price and the loan balance, for example).
9. Move fast, but not too fast. You'll need to act quickly once you find a foreclosure property that you want to buy - before other investors beat you to it. At the same time, you don't want to be too rushed or you may make a decision you'll regret later.
10. Know the law. There's more legalese involved in a foreclosure transaction than in a traditional home sale. Plus, foreclosure laws differ from state to state. Read up on your state's foreclosure laws and ask your real estate agent to recommend a good real estate attorney with experience helping people purchase foreclosed homes. According to U.S. News, a detail as tiny as the wrong font size on your documents could hold up the transaction or -- worse -- land you in legal trouble.
What do you think? Have you invested in foreclosure properties? What's your experience been? Click on the "Comments" link below and join the discussion!
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