I created this blog to have a place to share information, ideas, thoughts, and experiences, not necessarily just about real estate, but also life in general.

October 30, 2012

Buying A Foreclosed Home

Buying A Foreclosed Home

Buying Foreclosure Homes.

Foreclosures or REO’s (Real Estate Owned properties owned by a lender). These days, we often hear home buyers and investors looking into taking advantage of their discounted market values. However, as with any type of investment, buying foreclosed homes is risky business and has plenty of pitfalls.

Here are some tips you need to be aware of:
1. Using the Internet.
This is one of the best ways to find foreclosed properties in your local area, state, or nationwide. Use the internet to identify the house, and then hire your own broker to negotiate on your behalf.

Remember: the listing agent, by his/her fiduciary obligation, is representing the best interest of the seller, not yours. Some may offer a cut in price; assist in your closing costs or some crazy side concessions “the seller need not know” (do you really want to have someone who is unethical and unscrupulous representing you?)

2. Work with a real estate broker.
You’ll find most lenders (banks) will have their REO properties handled through a broker. Find a real estate agent who can give you a reasonably accurate market analysis and values in the neighborhood (difficult to do on internet), and who is familiar on how to negotiate REO properties.

3. Don't Buy Sight Unseen.
I strongly advise against buying a property sight unseen, that’s like driving with blindfolds on (and that’s just crazy). I’m not saying it can’t work; it is just not prudent to rely almost exclusively on digital photos, virtual tours, or marketing materials, especially on probably the most expensive investment you’ll make in your life time.

4. Get a proper property inspection done.
It may well be that you are confident about the cosmetic repairs in the property you are purchasing such as: cost of painting, re-carpeting, replacing appliances and so on. Or, you can always have the proper trade person to give you an estimate on the things that need to be done. But it's best to get a professional property inspector.

What most REO buyers fail to understand is that they are purchasing a property from a seller (in this case, a bank) who has never lived nor even set foot in the home. They may have hired a broker to market the property, but I would not rely on that listing agent’s forthrightness entirely.

This is a major investment you are making. Its well worth the cost of having a home inspector check the major components of the property: electrical, plumbing, heating, air-conditioning, and whatever else is in the house. Problems with these components may be costly. The low price you paid for the property may well turn out to be not such a good buy if you underestimate the cost of repairs. Leave the negotiation of price to your broker; be the missionary for assessing the extent and cost of repairs.

Happy REO house hunting!

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