Foreclosure Considerations
Foreclosures
A bank has repossessed a house from the owner. The bank is the official owner and seller of the property. Banks aren’t in the real estate business and are motivated to sell REO (Real Estate Owned) properties.
Typical Foreclosure Transaction:
- Listed asking price realistic, often selling within 97-100% of asking price.
- Respond within 3-7 days of buyer’s offer
- 30-45 day closing or sooner contracted closing time, but the bank selects their own escrow and title companies, which may be very backed up, so the closing date can be significantly delayed- up to 2 months in some cases
- Often want “highest & best” offer presented, which is accepted or rejected without counter offers
- Terms of contract restricted: Shorter inspection contingency period, often 3-10 days
- Penalty to buyer if closing is delayed, often $100-150/day
- Home warranty paid by buyer not seller, often $350
- Exempt from most disclosures since the bank has never occupied the property
- No Request for Repairs granted. Property sold in “as-is” condition, unless a major unknown issue arises.
PROS: often aggressively priced and a relatively quick response time
CONS: property may need cosmetic fixing (paint, carpet, etc.), little room for contract negotiating, no disclosures; may be in HIGH demand with lots of competition, many well priced “move in ready” foreclosures sell for ABOVE list price- up to $20k in some instances.
CONSIDERATIONS: Don’t think that a bank is going to accept a lowball offer. The property is often aggressively priced already. Be ready for the occasional fist hole in the wall and ding mark from moving, dirty paint, missing appliances, unkempt yard, and worn carpet. Most listing agencies and escrow companies are employed by the bank and get properties in bulk, and provide very little information on the property and notoriously poor services.
STRATEGY: Find a foreclosure you like? SUBMIT AN OFFER QUICKLY! The best foreclosures often sell within a week of being listed, and have multiple offers – sometimes creating bidding wars. You’ll absolutely, positively need a Pre-Approval Letter, Copy of the Deposit Check, and Verification of Down Payment Funds. Asking for closing cost assistance will make you look like a weaker buyer than others not asking for help, and putting higher down payment amounts will make you look stronger.
Other Foreclosure Considerations:
Bank’s aren’t in the business of real estate and need properties to be sold quickly, hence the great listing prices. Some banks have started listing properties to generate an “auction mentality”. Banks will purposefully list a property $100,000 or more under market to generate immediate interest. They will tell all buyers to submit their highest and best offer within 5 days of listing, and the highest bidder will “win” the house. However, if none of the offers meet the “reserve” price (the bank’s REAL bottom line), then it won’t be sold to anyone and they will readjust their pricing. Recently, a property came on the market for $200,000 that was really worth around $400,000, but the bank told everyone that within the first few days they had received offers up to $400,000, and that a buyer shouldn’t even bother submitting an offer unless they wanted to beat that price. It worked, and the property sold for $409,000 – a far cry from $200,000! Don’t get caught up in the game!!!
