The real estate industry is full of properties regarded as lucrative for investors to fix and flip. Nonetheless, none of them is as appealing as short-sales and foreclosures. However, investors need to approach these opportunities proactively, in order to gain the best possible return on their investment.
Since foreclosed properties are considered non-performing assets, lending institutions and banks that own the properties market them as actively as they can. One of the approaches they take is offering discounted sales to the potential investors and homebuyers, which is why most foreclosed properties sell below their actual market value.
But purchasing a foreclosed home is not like purchasing a typical home. In most cases:
- It only involves one real estate agent
- The seller seeks a pre-approval letter from the lender before they can accept the offer
- The property is sold on an as-is basis, meaning it’s up for the buyer/investor to perform the repairs
- There’s usually very little, if any, room for negotiation
Fortunately, most of these properties are already vacant, which ideally speeds up the process of moving in. There are a number of steps you can take to put yourself at an advantage when it comes to locating and tracking foreclosed homes. Having a proactive plan and establishing a working rapport with the right people can land you’re the house of your dreams, at a really great price. Here are the essential tips when buying a foreclosed home.
Work with the Appropriate Agents
These should be among the first people you contact for help finding and procuring foreclosed homes. This is because most agents are very familiar with the ins and outs of the industry and are likely aware of a number of properties that are nearing foreclosure. Keep in mind that agents ideally have a working rapport with other agents, and often work with various banks and lending institutions.
Although you may eager to works with the first agent your find, it’s worth noting that it’s invaluable to work with a good agent. You should ideally look for an agent that communicates well. After all, you wouldn’t want to work with an agent who you can’t get in contact with when you need them, since timely responses and punctuality are critical components of securing a good deal.
Ideally, the agent should have an unquestioned passion for the industry. And while most agents have access to a wide network, some are better than others are. It will also be difficult to rely on an individual that you can’t trust. Being sure that your agent has the best intentions at heart is worth the extra mile finding the right agent.
Get the Broker on Your Side
Banks and lending institutions usually hire real estate agents and brokers to handle their REO (real estate owned) properties. In most cases, the buyer will work directly with the broker instead of getting a buyer’s agent. This way, commissions aren’t shared between two brokers.
Since the realtors usually have a long-term relationship with the lenders and banks, they know about the listings that are yet to be made public. So, you can contact them and inform them about the listings you’re interested in, and ask them about any upcoming listings, since it may take a few days for a listing to be updated in the public records.
In areas where there are thousands of foreclosed properties up for sale, it’s possible not to get enough attention from the overloaded agents. So, to keep their attention, prove that you’re serious about purchasing the property by meeting with the lender right before and after meeting with the agent.
Search through the Public Records
The importance of having the right contacts and working with the appropriate individuals in the industry cannot be understated. Nonetheless, in your search for foreclosed properties, it’s just the beginning. There are multiple sources available for investors, each of which makes the process of finding these distressed properties easier for people who want to know about them.
Whenever a homeowner starts to fall behind on their mortgage payments, every delinquency is usually reported to the credit bureau. As such, there are both non-public and public records of properties facing a foreclosure. While non-public records are difficult to see or acquire, public records for foreclosure are released as soon as the lender or bank files the required paperwork to begin the process of foreclosing a property
You need to adhere to your local state laws and guidelines to obtain the list. Though the process is different on each state, there are some common options for obtaining the list:
- Title companies
- The county recorder’s office
- The National or Local List providers (for a fee)
You may also check your local real estate website with a database of foreclosed homes such as US Probate Leads – Foreclosures Daily, ideally one that lets you filter the results to only see foreclosures. You may come across the REO acronym, which signifies that the property is already foreclosed and that it’s owned by the lender who’s now selling it.
Check the “comps” before your make an offer
Just as you probably do with other real estate purchase, look at the recent sales price of similar properties or “comps” before your make an offer. Be sure to check the “comps” in the current market conditions to make a competitive offer based on that. In some cases, the bank will price the home really low, and the property will receive multiple offers over the price in a matter of hours. Other times, the list price is too high, and you can come in lower.
If Properties are Selling Quickly, Bid the Higher Price
Since the foreclosed houses are sold as-is, don’t expect to receive any discounts to compensate for the repairs. So, if you notice that the foreclosed homes you are checking out are selling rather swiftly, the best approach might be coming in at your highest and best offer, unless the property has been in the market for a while and seems to have no activity.
Find the Right People to Evaluate and Repair any Damage
Since repairs and renovations are almost unavoidable in foreclosed homes, it’s worth knowing tradespeople who can evaluate and repair different kinds of damage from water leaks, mold, and pests. Always assume that the heating system and the air conditioning has to be fixed.