How To Buy A Foreclosure

Other home buying opportunities includes foreclosures often called REO’s (bank term for foreclosed/bank owned property). Foreclosures are properties owned by the big banks such as Chase, Wells Fargo or an aggregator like Fannie Mae or Freddie Mac.

Buying a foreclosed property usually means having to do two or three inspections. Many foreclosed properties available in the market today have health and safety corrections that need to be made in order to attain loan approval.

How the foreclosure sale process works.

Scenario: Banks have property they taken back and have re-listed that are available for sale, Reo’s. The additional party in a foreclosure purchase transaction is an asset manager. The asset manager works for the company or bank that owns the piece of real estate being sold. It’s important to know that this person is paid extra bonuses for selling more assets. An asset is considered to be the piece of real estate being offered for sale by the bank. The asset manager gets what are called broker price opinions (BPO’s for short) which are merely opinions of what the property would sell for provided by local real estate agents that serve the community where the property listed.

From there, the asset manager does their net sale calculations including things like carrying costs (maintenance costs, tax payments, HOA payments), along with real estate agent commissions. A listing agent is hired by the asset manager to sell the property for whatever price the listing agent can sell the property for based on other comps in the area.The listing agent also takes into consideration the minimum amount the bank is willing to accept to allow the sale to go through.

In some markets:

Listing Property Low-Listing agents intentionally list the property below market to induce multiple offers. If you’re in the process of buying a house or think you might be, talk to your real estate agent about multiple offer situations on foreclosures. This course of action also allows the listing agent to bring multiple offers back to the bank so the bank can actually turn a profit.

How does the bank turn a profit if they foreclosed on the property and are selling a property for lower than what they lent for originally? The bank gets to “write off” the old mortgage loss from the homeowner who they took the house back from originally, so they start off with a clean slate.

2nd Pre-Approvals- listing agents will put in the special instructions section of the multiple listing service that their home buyer must go through, the bank’s loan officer in order for them to consider the offer. For example let’s say Chase owns a foreclosure is being listed for sale.

They will require the home buyer to get a preapproval with a Chase bank loan officer in order for them to accept the offer from the buyer. During this time, the bank also tries to offer more competitive financing to the home buyer in an effort to control the transaction on both the listing side and on the buying side.

Preferred Tittle Company-listing agents acting as the agent of the bank in carrying out their special instructions, will often try to steer home buyers into working with the seller’s preferred title company. In many instances, the bank has an affiliated business arrangement with that title company or they own a percentage of that title/escrow company.

How does this affect your ability to purchase a foreclosure? Well, there is an indirect issue going on here and that issue is that these REO title companies are volume-based which means they not only cost more (and charge more because they can), they take longer, oftentimes requiring you to prolong your close of escrow. While this remains true, the banks are more likely to give seller credits for closing costs if you agree to use their preferred title company. While using their preferred title company might make the transaction a little bit longer, in the long run you can save money by mitigating your cash to close escrow.

Distressed Property-These properties oftentimes need work, including such things as fixing dry rot, repairing a caving roof, repairing paint chipping on the interior or exterior of the home etc. Most listing agents have handymen that can get these types of things fixed with little or no hassle. Talk with your real estate agent. You can also chat with your mortgage lender about how to buy that foreclosed property even with a government loan should such challenges exist.

Highest & Best Offer Situations-foreclosures many times are listed in such a way to induce multiple offers. When multiple offers come into play, the listing agent does what’s called the highest and best. They ask each buying agent (your agent) to reconsider their offer is in fact that the highest and best offer that each agent has submitted. Simply put, it’s an opportunity to rewrite your original offer higher if you would like to purchase that property. The listing agents depending on the amount of offers will also do multiple counter offers, where send several counter offers back to the strongest offers.

Per-Diem Interest-is interest charged on a daily basis and it is imposed by the seller for every day the transaction does not close on time. This amount is a variable. In many markets its $100 per day for every day the transaction closes late. So if you are five days late on closing escrow, you have an additional $500 penalty. Communicate with your real estate agent regularly along with your mortgage lender to make sure you are not assessed this penalty.

How buy a foreclosure the right way.

Foreclosures present opportunities for home buyers bid on. Many times foreclosures are already listed at the price that the bank is willing to accept, most the time they are listed within 15% range of the lowest amount they are willing to accept.

Discover how to buy a foreclosure.