Buying Foreclosed Properties: Procedure to Follow
A foreclosed property is one which has been repossessed by the bank because the owner was not able to pay his or her mortgage loan. This type of a property can only be sold after the foreclosure process is complete and the property is listed in the local MLS (Multiple Listing Service) by the bank.
According to U.S. Real Estate Statistics & Foreclosure Trends Summary, there were about 590,135 properties in America that were in the process of foreclosure in the year 2016. In the same year, there were about 875, 511 homes listed for sale on RealtyTrac. Buying foreclosure properties is not the same as buying a typical resale. In most cases:
- There is little room for negotiation
- The seller does not do the repairs
- Seller can only accept the offer after receiving a preapproval letter from the lender
- The entire process involves only one real estate agent
photo courtesy Charlotte Real Estate
5 steps to buying a foreclosed property
- Getting a lender and a realty broker
When buying a foreclosed property, the first two steps should happen almost at the same time. Commence by looking for a real estate broker who works closely with the bank to which the foreclosed homes belong. Then, acquire a preapproval from the lender. Shoppers are to visit a local real estate website to know which homes are through the foreclosure process.
- Getting a broker on your side
Going through the foreclosure listings will help you find an agent. In most cases, banks hire a few real estate brokers to deal with REO (Real Estate Owned) properties in the market. As a buyer, you may decide to work directly with the broker of the bank instead of hiring a buyer’s agent.
Most of the realtors in the real estate industry have been working directly with the banks for decades. Thus, buyers should ideally have a discussion with them about the listings they are looking into. Also, they should not forget to ask whether there are any listings likely to come up in the nearest future.
- Acquiring a preapproval letter
If you are not able to pay cash, you will need to get a preapproval letter from a lender. This letter will show the amount of money you can borrow based on your income and credit score. If you know the highest amount you can borrow, you can now get a foreclosed property you can pay for.
- Pricing depends on sales space
In most cases, the banks do not state the lowest price they can go for. Therefore, it’s important for every buyer to do an extensive research to know the average prices of comparable facilities. Knowing the average prices of comparable properties in the market will help you write or come up with a competitive offer.
- No repair discount
It is important to remember that foreclosed properties are usually sold as-is. In other words, the buyers are to do repairs after acquiring the property. Also, the seller cannot give them discounts to compensate for repairs.
Conclusion
If you are planning to purchase a foreclosure, be sure you know the procedure to follow. This will help you prevent time and money wastage. Moreover, buying this type of property requires the right real estate team, mental resolve to see the process through, and careful budgeting.
Author: Pankaj Deb
