Foreclosures...Ther're a significant portion of our business in today's market. But for most agents, this process is way outside the norm. This type of transaction will be more tedious than the "old" days and you may want to fasten your seat belt.
So, I've put together some things to consider when your client insists on looking at this type of property.
1. What does the client really want when they say foreclosure? Most buyers say it, but what it really means is a deal. Whether is bank owned, or REO, shortsale. What they want is a very well-priced home, maximizing bang for buck. What they typically don't understand is the potentially difficult and timely process it will include.
2. Foreclosure usually means more competition. Since there is a mass of distressed inventory, the cllient needs to understand that they're not the only person in the market that is looking for the magic deal. Even though transaction volume may be down, the investors, bargain hunters and other buyers are looking at these properties too. So, if the client is serious about this type of property, they need to be in a position to "pounce." All their ducks need to be in a row. There won't be a lot of time to mull things around on that special deal.
3. Be prepared to move fast. Pre-qualifying letters are simple to attain but actual funding may be an issue. Can your client actually solidify funding? Do they have a mortgage broker? Can they qualify? What is their debt ratio, credit rating, etc. AND will this property meet the lenders qualifications? As an agent, you are showing ten times the amount of properties for that one deal, is it going to fall apart before getting out of the gate?
4. Be prepared to wait. The typical transaction, you have the opportunity to set deadlines for a response from the seller. Not with a bank owned or short sale property. Remember, banks aren't in the real estate business and their are a ton of channels to go through to get a response on an offer. This can take a week and sometimes in upwards of a month or longer. Meanwhile, your client is itchy and can't understand why the delay. Make sure your client understands this is a different type of animal than the traditional transaction.
5. Inspect, Inspect, Inspect. There has never been a more viable reason to conduct a home inspection than the current market conditions. These properties are distressed, hence the term. Defects are common and are typically large price point items. In years past, there was a certain price point in which you wouldn't consider some defects, but those rules no longer apply. But for most, the price points between 180k and 350k seem to have the most propblems. We have seen homes that have been stripped of everything: appliances, cabinets, bathroom fixtures, plumbing, flooring and even HVAC systems. Not to mention the defects that were present before they received the foreclosure notice.
From what we have seen recently, the volume has been within the lower priced and older homes. This can cause some headaches for you and your client. Walk the property with you client and take notice of the "in your face" defects or potential deal killers. If you know your cllient doesn't have an extra 25k for improvements and the deal is an "as is," then inform them that the defects out weigh their bank account. Even if the seller is willing to give them a price adjustment, if they don't have the funds to make necessary repairs ie., roof, AC, then that home will be back on the auction block sooner than later.
In addition, here in South Florida, all insurance carriers will mandate an additional inspection (Four Point) on any property that is 40 years old (Citizens = 50) in order to bind a homeowner policy. And depending on the underwriting guidelines, may not be able to bind if there are defects.
6. Get others involved. If you are "cutting your teeth" in the distressed environment, keep a few of your fellow agents in the loop. In particular your broker. Once again, most of these transactions are outside the box of normal practices and it is in your clients best interest to fully represent them to the best of not only your ability, but your office's as well. If there is a problem, concern or question...bounce it off your office manager or broker. Remember, transactions can come back to haunt you.
7. Take the time to understand the procedure. There is nothing normal about these transactions. There will be banks that respond quickly and those that seem like paint drying. Be prepared to act on both. If you intend on making this a primary avenue or specialty, develope a relationship with the asset manager or the department head of the bank in which your office is doing business with. If you're attempting to establish your own relationship and get the ball rolling, make an appointment with your "go to" and clearly define their expectations. Most want to re-capture the loan with the new buyer. Grab both, asset management and loan department, and go to lunch, dinner, drinks, etc. Have a boat, take them fishing.....etc. This is a great opportunity to develop a long-lasting relationship. Remember, when the market turns again, foreclosures will remain to be a viable, quick close opportunity.
David Manley CRI, CMI, WHMI
GOLD COAST INSPECTIONS