Everyone hears about the problems in real estate; that there are many homes on the market and many more being lost to foreclosure every day.

In California, this is much more prevalent than in other parts of the country. California has a higher rate of foreclosure than average and values have declined in many neighborhoods. According to Realty Trac, a California based company that tracks the Nation's real estate transactions, one in every 171 households in the California were either in foreclosure, received a Notice of Default, or had been warned of pending action. This is a 121% increase in foreclosure activity over the same period in July of 2007.

Fortunately, there is always an upside to any downside. The upside to this problem is that home values have worked their way down to becoming more affordable to more buyers.

In the years between 2002 and 2005, we experienced a hot seller's market. This began to cool in 2006 and to become a buyer's market. 2007 and 2008 have brought a record number of foreclosures in California. The reasons for this are many, but it is mostly agreed that lenders were using some loan programs that made it too easy for people to buy real estate.

The market has now corrected itself and buying real estate has gone back to the buyer needing more down payment and proof of income.

Because the values have dropped and there are more foreclosure properties available, many first time home buyers are seeking out these types of properties. In addition, 150,000 to 180,000 homes have been sold to Canadians flocking here to take advantage of our buyers' market.

There is a lot of inventory on the market and the majority of it is either pre-foreclosure, auction sales, or REO properties. In the mix are also homeowner's who are not distressed, but need to make a move for one reason or another.

There are three types of distressed sale properties:

Short Sale: This property will have a seller who is likely still living in the property but is having trouble making their payments. The value of the property has declined to the point that the property is up-side down. The seller owes more than the property is worth and will need to negotiate with the current lender to take a loss on the property in order for the new buyer to close the escrow.

The advantage of a short sale property is that the seller will provide you with disclosure reports regarding the condition of the property. The new buyer can ask for repairs to be made to the property.

The disadvantage of a short sale is that they take a very long time to close. As a loan officer, my clients have to wait as long as five months for the lender to agree to terms the buyer is requesting. During that time, the property may have lost thousands of dollars in value. Buyers notice this and will tend to make offers on more than one property.

Auction Sale: Many of us have seen commercials and even, infomercials regarding buying properties at auctions.

While it is possible to get some bargains, I don't recommend it for anyone who is inexperienced at this. You will need to have all cash, payable within four days of the auction closing.

Usually, you will not be able to even see inside the property. You purchase the property as-is. There is no warranty or statement from the seller as to the condition of the property.

This is a huge drawback because many times there are significant problems that will need to be corrected. Your bargain could become a huge expense if all of the rooms have been stripped and you find that you need to add a new kitchen and bathrooms.

The most experienced, buyers are usually attracted to these properties because they are able to handle a heavy duty fixer. Repairing walls, plumbing, electrical, and other heavy duty work isn't uncommon for them and a buyer like this can make a lot of profit on an auction home.

REO Sale: Properties that the lender has had to purchase back because no one bid on them at auction are called REO properties. REO stands for real estate owned.

An REO property can be found on the MLS and most real estate agents can show you these properties. You will be able to look at the property and see the floor plan and other features the property has to offer. There is no disclosure from the seller as to the condition, but you would be allowed to have your own inspector look at the property when you have made an offer.

Many of these properties are in great condition. There are a great variety of homes available. The bargain in this property is that anyone can buy their next home and know what they are getting when they buy the property. You will usually pay less than what a seller-occupied, non distressed property would cost. This makes REO listings a great idea to look into, if the properties come up in your price range and needs list.

Those who are investing in real estate or are looking for their next homes will benefit from looking at REO and foreclosure properties.

In all cases, the seller is very motivated to sell. A buyer can get very attractive terms when they negotiate well. I recommend to my clients that they ask the seller to pay some or all of their closing costs. I work with the agent to present this to the seller in a way where we get to the bottom line benefit to the seller.

Once everyone wins, then the purchase is truly a great value.

For more information contact the author, Mary Supinger, at 619.701.4321

copyright August 2008 ALL RIGHTS RESERVED