So you have heard the stories from your brother who has a buddy at work whose cousin got a place valued at $400K for $80K because he bought it in foreclosure – and now you want in on the action. That’s good… first thing you NEED to do is call me. In all seriousness, there are a lot of things you are going to need to be aware of before getting started and I highlight some of these details below.
- Generally, the more cash brought to the table for down payment the more comfortable the bank is with considering a lower bid. The uncertainty of getting paid a minimum amount for property and the likelihood of not closing is diminished.
- Your home inspector and attorney are your two best friends, next to your agent. The biggest mistake I see is not paying $350 for an inspection because a buyer thinks, “This is a great deal and the house seems just fine if it says ‘AS IS’ condition and the bank won’t negotiate repairs, why pay for a inspection?”. First of all, banks will sometimes negotiate if a HUGE structural issue is found that will plague them from being able to close any future deals on the property. Plus, paying roughly $500 on a single-family home inspection to find a major foundation issue that will cost you tens of thousands shortly after closing is worth it every time.
- Banks often have teams of individuals working on a large number of listings. Make sure that your agent discusses your pending offer with someone on the team prior to submission of the offer. This will help your agent know what to expect in future negotiations, assess financing strategies, uncover what number they need to hit, and learn of any possible competition bidding for the same property.
The types of foreclosure stories as mentioned above dominate buyers’ psyche in today’s market and therefore prompt buyers to have their agents ready to pounce on anything with “REO” or “BANK OWNED” in the listing remarks.
You have to be fast, confident and READY to take the chance on an “AS IS” property. “AS IS” means just that you are getting exactly what is left of the unit. Sometimes there are liens on the property from utility companies, condo associations and former laborers who worked on the home. There also could be possible tenants in the building who have a lease on the property through the former owner. The “AS IS” part is something that your attorney and real estate agent can work to identify before submitting an offer.
Make sure your agent knows the ins and outs of the pending purchase. Ask him/her what correspondence he has had with the bank in regards to a minimum offer price. You will be amazed at the thousands of dollars an agent armed with the right questions can save you. Ask your agent how long it will take to get a response. And how he plans on presenting the offer and make the case that yours is a solid offer, considering the market conditions. Make sure your agent communicates with you on what is to be expected and that he has done everything in his power to find out what “AS IS” means with this particular property.
While there are a tremendous number of distressed properties that get scooped up for far less than they would be worth, in densely commercial and sophisticated places such as Chicago, you can be sure that a bank owned property in “top tier” neighborhoods are hard to come by. When they do hit the market you better be ready to throw down offers above list price with some strong finances (cash) to make it go your way. YES, it is true foreclosures often go for far above what they are asked for, especially in prime areas.
Buying foreclosures can be a great way to get an amazing deal on your next home or investment property. But remember, you need to be prepared with your finances, know how the bank listing the property handles sales procedures, have an idea what “AS IS” means for the property you are interested in, and, most importantly, have a diligent and experienced real estate agent help you through the process.