My Loans Consolidated

If you go to the websites of big banks you will notice that they are starting to look a little bit like real estate brokerages as they show a long list of properties that they have just repossessed. Based on the information from the National association of Realtors, many of those houses cost about 15-20% less than other homes in the same neighborhood. Even in Las Vegas, foreclosure homes has dropped to 34% in foreclosure sales. The banks have been careful not to flood the market with all the properties at once, but currently there are hundreds of thousands of listings and there will be half a million more in the coming year.

But before anyone considers buying one of these properties, they should heed the classical property law doctrine that says, “Caveat emptor,” which means “let the buyer beware.”

Buyers should search more aggressively than usual in terms of finding the right broker who has the best foreclosure listings, constantly checking for new lists and also visiting the properties shortly after they find something. It is also important for buyers to make sure that the home is a real good deal and not just a money pit. Note, that most of these homes in the foreclosure list are sold as is. But then again, the prices or these homes are a good bargain and the best discounts have been on bank-owned property.

If you are interested in buying real estate owned properties (REO) you have a few options to do so. First, you can buy it through a preforeclosure sale, at a public auction or through a bank or other entity that has repossessed the home.

However, before you buy any of these REO through preforeclosure transactions which is also known as short sales, you need to understand the potential risks and benefits. In a short sale, the bank agrees to sell a home for less than it is owed on the mortgage.

Homebuyers are generally not encouraged to buy homes at auctions. The reason is that there are just too many risks involved. One of them is that before buying a home, you will not be able to visit and tour the inside of the house. Additionally, in an auction, you will not be informed whether there are any tax liens or other debts against that property. When in the end you win the auction and buy the home, you will be buying the issues of the home as well.

The advantage of REO’s is that the bank will clear any title issues before it puts the house out on the market. But you still need to do your share of preparatory work too. Your job will be to get acquainted with the listings in your target area. Usually REO’s are sold through agents. Their listings can be found directly on the websites of big banks such as Bank of America, Wells Fargo or SunTrust. Fannie Mae also offers this kind of listing, but it goes through the HomePath web site, while Freddie Mac through HomeSteps.

Free foreclosure listings are also available through independent brokerage such as Redfin.com. There you can find a forum where you can compare notes and discuss with other buyers. There are also other foreclosure sites that you can join buy paying a monthly fee.

So, what are your steps in buying foreclosure homes?

First of all, you should make sure that you get preapproved by a mortgage lender. Doing so will help you move quickly as soon as you find a property. Next would be calling the listing agent or you can also hire a buyer’s agent to do it for you. It is probably a better idea to hire a buyer’s agent who has experience in these types of sales. Ask the agent to arrange to see the home as soon as possible.

Note that most REO’s are sold as is. You should make your offers contingent on a home inspection. Find inspectors who are also licensed contractors, preferably with references, to help you estimate repair costs. But be careful not to put too many contingencies in your offer, as it is likely to derail your bid.

Usually a listing has about 10 to 20 offers, and your listing agent will most likely tell you that. So you need to be prepared that you may lose your offer to buyers with all cash. In the REO world, cash is still king because there is no appraisal, last-minute quality checks or potential problems to kill the deal.

Your chance to get the home is by making your best offer right from the start but you should also be careful not to overpay. Try using sites like Zillow.com to research comparable sales. You can also ask your agent to prepare a “comparative market analysis” for you. What you will be doing is negotiating with a calculator. If the seller don’t like your number, they will say no and move on.

Compared to REO’s, short sales tend to be more problematic. You can expect to get a response within a few days on an REO. But with short sales, it can take months. Also, with short sales, you can’t necessarily trust the listing price. It could be only a teaser price just to get offers in.

Complicating matters further, the homeowner may have more than one loan on the property, adding to the number of parties involved in the negotiations.

All this lengthens the time to close a deal.

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