Are Foreclosures Really All They're Cracked Up To Be?

By
Real Estate Agent with Infinity Realty

"My friend Mary just got an awesome deal on a foreclosure!  She got the house for $35,000 below market value."

In this market, who among us has not heard a story similar to that?  Sure, when you know just what you're up against and have an experienced Realtor to guide you, foreclosed and distressed homes can be a fantastic opportunity for some walk-in or sweat equity.  But there is a lot of the story missing; and buyers out to get a steal in the the real estate market often have to find out the hard way that it is not just making a low-ball offer and signing on the dotted line.

First, when you're negotiating to purchase a foreclosed home - you are at the mercy of the bank, investor, or servicing company who is handling the sale of the property.  The whole process will happen on the terms of the seller; and while it may take them days to answer a buyers offer, they expect all counter-offers and documentation from the buyer to be submitted immediately.

They will outline the closing date, inspection and financing timelines.  Many of these homes are without utility service and/or have been winterized, which can add $200-$300 in additional inspection expenses.  In most cases, the home will be sold as-is (except for the case of termite infestation, which all sellers in this area are compelled to treat by law), therefore many of these homes will not pass FHA or VA Appraisal requirements.

Buyers can spend up to $1000 on inspection costs, only to find that the condition of the house is unacceptable to the lender, or buyer - or both.  Having to start again the search and negotiation process can be frustrating, especially with a lot of time and money having already been spent.

So if the process to buy these foreclosures is so difficult, why do buyers even bother with the process?  Simple!  They remain in charge of one major aspect of the sale - the price.  Buyers have quite the advantage in this current real estate market because there are so many distressed homes for sale.  Many of these homes are being sold for thousands (and even tens of thousands) below a "typical market value."

Even the homes that need some work can represent a great profit opportunity to the savvy buyer.  However, a lot of the available homes out there are in terrible condition, and will require thousands of dollars in repairs and updates. Therefore, what a buyer will spend in total on the property must be considered.

Many buyers who have already purchased homes are surprised to find that they have little room to "make demands" like they have in past transactions. First-time buyers - for whom the buying process is already full of surprises, can be easily (and understandably) overwhelmed by the additional difficulty added when buying a foreclosed home.

This is why it is essential to have an expert Realtor in your corner.  Now more than ever, having a skilled agent guiding you through the process step-by-step will help ease what is likely to be challenging at the very least.  With all the changes happening in lending and the housing market - consumers need someone on their side who stays informed, and is out there "fighting the battle" for their clients every day.

So before you decide to "hop aboard the foreclosure train", be sure to contact an experienced Realtor who will help you examine the pros and cons.  Each buyer's situation and home for sale are unique, so be sure you have an expert to help you decide what's right for you.

 

Posted by

Lori Day

Infinity Realty

(816) 200-4372 Cellular 

(816) 554-6351 Fax

(816) 554-6368 Office

mail to: Lori@LoriDaySells.com

 

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Comments (4)

Retired from ActiveRain
Baker, OR

Buying a foreclosure is not for the "faint of heart."  You need to know what you're doing or have an experienced Realtor that does.  Buying a foreclosure isn't always a guarantee that you'll have instant equity.  Repair costs can eat into potential profits.

Feb 21, 2010 03:11 AM
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes

Before buyers go out and see some of these foreclosures they seem to forget the reason the property foreclosed was because the owner was in financial trouble -- and they come in with expectations of "upgraded kitchens" and "top quality" --- if the owner had money to keep things in tip top shape they might not be foreclosed properties -- and these unrealistic buyers are shocked at the condition of some of the foreclosed homes.

Feb 21, 2010 03:18 AM
Deborah Byron Leffler BzyBee Real Estate Lady!
Keller Williams Realty Boise - Nampa, ID

It is a great opportunity for those wanting a bargain priced property!   I have got several bank owned transactions going on now....I would much rather work on an REO than a short sale! 

 

Feb 21, 2010 04:50 AM
Sandra Paulow
Aspen Properties, Inc. - Pinetop Lakeside, AZ
REALTOR, Associate Broker, GRI, SFR

The REO market in our area is beginning to dry up a bit.  There are still REO's in the market but they are the dregs that have been left after the choice properties are gone.  If a nice one hits the market it is gone in a matter of days, usually in a multiple offer situation.  There never have been too many short sales because the sellers gave up trying to work anything out and just let them go.  I have no doubt there will be more REOs but because there are more buyers for that market than there are homes they don't last long. 

They can be a good deal if they are priced right and the buyer is in a position to do the repairs without having to depend on the Bank to do them.  That can be difficult with FHA or VA financing.  Financing in general is really hurting our sales.  The lenders look for excuses not to lend rather than to help get rid of the glut of properties on the market. 

 

Feb 21, 2010 06:32 AM