It’s hard to resist isn’t it? The desire to find that “good deal” and buy a home below market value. Well….before you roll up your sleeves and say “I want to buy a foreclosure” there are 5 things you should know! After reading, if you decide it’s the direction that works for you, I’ve helped many people purchase foreclosures (and short sales) and would love to be of help.
1. Choose a foreclosure sale expert. Lenders rarely sell their own foreclosures directly to consumers. They list them with real estate brokers. You can work with a real estate agent who sells foreclosed homes for lenders, or have a buyer’s agent find foreclosure properties for you. To locate a foreclosure sales specialist, call local brokers and ask the real estate professional which lenders’ homes they’ve sold, how many buyers they’ve represented in a foreclosed property purchase, how many of those sales they closed last year, and who they legally represent.
If the agent represents the lender, don’t reveal anything to her that you don’t want the lender to know, like whether you’re willing to spend more than you offer for a house. You should get your own buyer agent to represent you.
2. Be ready for Multiple Offers – Buying a foreclosed home in Colorado is more complex than a traditional purchase. First, the homes often are listed at or below market value and create higher demand. Most are sold in less than 7 days on market and have more than one offer. Work with your agent to get a report of similar homes that have sold and determine the “maximum” you are willing to pay. If there are multiple offers and you are convinced this is the home for you, present your “maximum”, often called highest and best, and that way if you get outbid you don’t have any regrets. While some people will tell you to always offer X % below asking price, this simply is not true when buying foreclosed home in Colorado. It is competitive. At the time this is written (May 2011) most foreclosed homes in Colorado sell for 99% of list price. Some sell higher. Your agent can give you professional advice to make a strong offer but without paying too much.
3. Be Ready for Paperwork, and More Paperwork – Foreclosed homes are owned by a bank. Each bank will have it’s unique set of disclosures and addendums that you will need to sign .Some require them signed when you make an offer. Others wait until your offer is accepted. Either way, there will be 20-30 pages of documents in addition to the standard Colorado purchase contract that you will need to review and sign. If you miss one inital or signature they can reject your offer and move on to another buyer. It’s extremely important your agent turns in a complete offer package for you. Oh yea, and many banks require ORIGINAL signatures, so no electronic or scanned signatures will work. Be prepared to coordinate logistics to sign these docs in person and often with only 24 hrs to do so.
4. No Contingencies. All mortgage market players, such as Fannie Mae, require buyers to submit financing pre approval letters with a purchase offer. They’ll also reject all contingencies. Since most foreclosed homes are vacant, closings can be quick. Make sure you have the cash you’ll need to close your purchase or a loan full approved before committing to an offer. They absolutely won’t allow it to be contingent on you selling your home either.
5. Expect an as-is sale. Most homeowners stopped maintaining their home long before they could no longer make mortgage payments. Be sure to have enough money left after the sale to make at least minor, and sometimes substantive, repairs. Although lenders may do minor cosmetic repairs to make foreclosed homes more marketable, they won’t give you credits for repair costs (or make additional repairs) because they’ve already factored the property’s condition into their asking price. Banks almost always make the sale “AS IS” meaning they won’t make any repairs to the home if you find problems at inspection. Often, they give you a short time frame to have an inspection performed too. Once you get the report, you often have 24 hrs to decide if you want to move forward or terminate the purchase. If you terminate, be sure to read the bank addendums BEFORE you go under contract to know if you will get your earnest money (deposit) refunded.
Are you still reading? If so then you are trooper and buying a foreclosure could be for you! Give me a call at 303-669-2744 x 5 or email me. My info is at the top of this web page.