4 Ways to Buy a Foreclosure
Below is a sampling of the types of deals available.
REO - REO stands for Real Estate Owned property which is owned by the bank. REOs have already been through the foreclosure process, to the auction, and now offered back on the market. Banks will hire REO specific real estate agents to help them sell properties.
Pros – Often can get a good price below market. Banks want to close quick on these properties to get them off the books.
Cons – The homes can be trashed and banks want you to sign an “as is” addendum so you do not get any warranties.
Short Sale - Short sales are properties where the seller owes more than the property is worth. Instead of bringing the money to the closing table, the seller may be able to “short” the home for less than it is worth. The buyer can come in and get a discount at 70 to 80 percent of market value.
Pros – Below Market Value
Cons – It can take forever to complete a short sale. Even then, it can take a long time to get an answer, and that answer can be no.
The Auction - The property is offered for sale at public auction to the highest bidder. This can be a quick way to get a good deal.
Pros – Qcuik way to get a good deal on a property. It is a clean way to get title since all junior lien holders lose all interest to the propety when sold during an auction.
Cons – There is a high risk because you do not get enough time for due deligence. Make sure you know what you are buying before the auction.
Pre-Foreclosure – In a pre-foreclosure deal, you can negotiate with the seller before the property is foreclosed on them at the auction. The seller will need enough equity to make this deal work.
Pros – The seller gets out from a home they cannot afford and can inspect the property prior to purchase.
Cons – It can take a lot of legwork on the investors/buyers side to find the right buyer.
