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West Hawaii Real Estate | June 22, 2018 15
5 tips for buying a foreclosed home
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Buying a foreclosed home is not
like the typical home purchase.
In many cases:
• Only one real estate agent is involved.
• The seller wants a preapproval letter
from a lender before accepting an offer.
• There is little, if any, room for
negotiation.
• The home is sold as-is, and it’s up
to the buyer to pay for repairs.
On the upside, most bank-owned
homes are vacant, which can speed
up the process of moving in.
“Buying a foreclosure is definitely
a bit of a grind. It’s not easy,” says
Robert Jensen, broker and president
of the Rob Jensen Co. in Las Vegas.
“You’re getting fantastic pricing, but
sometimes it takes going through a
lot of houses and writing a lot of offers
to get the home you want.”
Find a real estate broker and
a lender.
The first two steps for buying a
foreclosure should be taken at the
same time. While you’re looking for a
real estate broker who works directly
with banks that own foreclosed
homes, get a preapproval letter from
a lender.
Elaine Zimmerman, a real estate
investor and author, recommends
that shoppers first visit any site with
a database of foreclosed homes. You
also could look at a local real estate
website that lets you filter the results
to see only foreclosures.
You might find the acronym REO,
which means “real estate owned.”
This signifies that the property has
been foreclosed on and the lender
now owns it and is selling it.
Get a broker on your side.
The goal of combing through
foreclosure listings is not to find a
house; it’s to find an agent. Banks
usually hire real estate brokers to
handle their REO properties. In many
cases, the buyer works directly with
the bank’s broker instead of using a
buyer’s agent. That way, the commission
doesn’t have to be split between
two brokers.
“A lot of these Realtors have a
long-term relationship with these
banks, and they know of listings that
haven’t even come on the list yet,”
Zimmerman says. “Call them about
the listings that you’re interested in,
but also ask them about listings that
may be coming up because sometimes
it may take a day or two or
even a week before a listing actually
comes onto the database.”
In places where thousands of
foreclosed properties are for sale, you
might not get much attention from
overloaded agents. To prove that
you’re serious about buying, says Jensen,
“Right before or after you meet
with the agent, meet with the lender.”
Get a preapproval letter
Unless you plan to pay cash, you’ll
need a recent preapproval letter from
a lender. The letter will detail how
much money you can borrow, based
on the lender’s assessment of your
credit score and income.
“The problem is, buyers want to
find the house first, and then they
think they’ll work out the financing,”
Jensen says. “But the problem is,
the really good deals on these bankowned,
they go quick — and the buyer
doesn’t necessarily have time to try
to work out the financing afterward.
They need to work that out first.”
Zimmerman says some first-time
buyers make the mistake of assuming
that the bank selling the home will
also finance the mortgage as part of
the deal. “Don’t expect to get financing
from the bank that foreclosed on
it,” she says. “That’s a totally separate
transaction, and they view it that way.
The people in the (bank’s) REO department
are not loan officers. They
are getting rid of bad assets.”
Look at ‘comps’ before making
an offer.
There’s no rule of thumb on what
the bank’s bottom line is on price. Just
as with any other real
estate purchase, you
have to look at the
recent sales prices of
comparable properties,
or “comps.”
“You really have to
look at the comps in
today’s current market
conditions and write a
competitive offer based on that,” says
Jensen. “Sometimes the bank prices
the homes really low, and the home
will have multiple offers over list price
within hours.
“Sometimes it’s priced too high,
and you can come in lower. A lot of
times, buyers will come to me and
say, ‘We want to write offers for half
price.’ It just doesn’t work that way.”
Bid the higher price if homes are
selling quickly.
Keep in mind that foreclosed
houses generally are sold as-is. That
means that you shouldn’t expect to get
a discount to compensate for repairs.
Jensen says: “Let’s say the house is
listed for $200,000, all the comps are
$200,000, and so the client comes in
and says, ‘Hey, look, I want to buy
this house but I’ve got to do paint,
carpet and fix some mold damage, so
I want to take $15,000 off the price.’
You know what? All the other ones
were in the same condition, and they
sold for $200,000.”
Jensen further advises finding
out how quickly comparable houses
are selling. With foreclosures, a
3,500-square-foot house with a pool
in a gated community might sell
within days or hours, but more modest
homes might sit on the market for
weeks. Or vice versa, depending on
market conditions.
If the foreclosed homes you’re
looking at are selling swiftly, “the best
advice on a bank-owned property is
to come in at your highest and best,
unless the property has been sitting
on the market forever with no activity,”
Jensen says.
“If you’re going to be upset because
you would have gone $5,000
more but you lost the property, just
bid the higher price in the first place.”
Find tradespeople who can assess,
repair damage.
Because repairs are almost inevitable
with foreclosed houses, Jensen
and Zimmerman recommend getting
to know tradespeople who can assess
and repair damage from pests,
mold and leaks. Zimmerman says you
should assume that the air conditioning
needs to be fixed, and possibly
the heating system, too.
It all sounds daunting. But at least
you don’t have to wait for the owner
to move out of the house.
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