Problems With The Property
Although the price includes a compensatory discount it can still be quite grim. The home may still be occupied by its owners. If they are unable to make their mortgage payments, they may fall behind in paying regular upkeep and major repairs. Some people who face foreclosure or are forced to do so are frustrated and take their anger out on their homes before they are repossessed by the bank. This can include removing fixtures and appliances, and sometimes even intentional vandalism.
Hidden Costs
In addition to the cost of unexpected repairs and renovations, additional costs can be added to a house that is otherwise in good condition. These include liens and back taxes. Before the purchase process can proceed, it is necessary to pay the allowed government money. This is mainly true for properties that are being auctioned. A bank will always clear any liens attached before it sells the property to another party.
Slow Process
Many paperwork is required due to the above-mentioned complications. Foreclosures are likely to require additional documentation to prepare for the closing, which is not always possible. The owner's lender must approve the deal if it is a short sale. This can take some time, as we mentioned earlier. A lower home valuation can be issued if there is serious damage to the property. This could affect the buyer's ability to obtain a loan. Lenders won't lend less than a certain amount of money because they don't believe the risk is worth it.
Although you might think that a bank would be keen to sell a repossessed home, the response times between the bank's and other parties can be slow with REO properties. It can take up to a month to receive a response to your bid. If the bank is holding your property, it may take longer to process your request.
It is not uncommon for banks with a large backlog to take more than 90 days to respond. You should spend time getting preapproval for a mortgage if you intend to finance the purchase.
Competition
Demand will rise in any market where there is a chance to purchase something at a lower price than the current rate. When dealing with valuable foreclosed properties, there is bound to be increased interest and competition.
A foreclosed house can often be priced at a lower price than comparable homes in the area. Many offers can be received quickly, and there is often a bidding war. What was once a bargain may quickly become a very expensive property.
Potential buyers of foreclosed properties may want to submit multiple bids at once. It is possible for other buyers to secure the property with a lower bid or an all-cash offer. Don't be discouraged if another buyer offers more than yours for a property. Instead, keep checking back to see if the property is still available in the bank's inventory. Deals for foreclosure are often canceled.
Acquiring A Foreclosed Property
A bank will not allow you to buy the property you desire. You'll need your bargaining skills sharpened and you should start the process with a very low price. Banks that have large inventories foreclosed properties are more likely to negotiate prices. Low offers are more likely to be accepted if the bank holds the property longer. It is best to place your initial bid at least 20% below current market prices. You might be able to get even higher if you live in an area with high foreclosure rates.
If you are able to pay cash for the property and any renovations, you will be in a good position. Some buyers partner up with outside investors so they can share in any future profits and help them out on their front end. Cash deals account for a large percentage of REO sales.
