Banks need certain information from buyers when negotiating a foreclosure.
Foreclosures have always been thought of as a great way to make good money by flipping homes (buying and quickly reselling them at a profit). In recent years, with the abundance of foreclosed homes on the market, buyers are more skeptical and proceed with greater caution. Banks, in response, have become much more willing to negotiate on foreclosure sales. If you are thinking about buying a foreclosure, there is information the mortgage company that owns the foreclosure will require prior to considering the sale.
Instructions
Buying a Foreclosure
1. Banks sell homes they have repossessed through foreclosure.
Enlist the assistance of a licensed real estate agent, broker or representative. Not all of them are created equal. Find one who is very familiar working with foreclosures, but make sure not to work directly with the mortgage company's agent. Sign a buyer's agent contract with an agent who will represent you, instead of the mortgage company selling the foreclosure.
Your agent will communicate with the mortgage holder's representative, represent you in the transaction, obtain information the bank needs for the foreclosure, and communicate your requests and responses regarding the property.
2. Find a licensed real estate agent to represent you.
Exercise due diligence with inspections. Have the property inspected by a home inspector and a pest inspector prior to deciding to buy the property. Select inspectors with good reputations. You don't want one who will overlook or not recognize potential foundation issues or structural problems. Those, in particular, can break the bank when it comes to repairs.
Pest repairs, like damage caused by termites, can also be very expensive, so if you don't already know a reliable pest inspector, ask friends and family members if they know of anyone reputable. The results of the inspections will determine how much you will offer for the property, and could influence any counteroffers that are made by either party.
3. Get estimates for all repairs needed on the foreclosed property.
Get estimates for repairs on the foreclosed property. It is not that uncommon that foreclosed homes are found in varying degrees of disrepair. If you are interested in one that needs repair, get estimates on all repairs needed. This will be another bargaining tool in your tool belt to negotiate for a better price.
4. Determine the value of the foreclosed property.
Decide what you will offer on the foreclosed home. Sit down with your real estate agent and discuss the fair market value of the foreclosed home. Go over the results of your real estate agent's comparative market analysis (CMA), which tells you how much the home is worth, along with the results of your home and insect inspections. Typically, you would take the price derived from the CMA, or the listing price if lower, and subtract the cost of anticipated repairs. Some buyers are throwing out significantly lower numbers to banks that are desperate to offload undesirable property.
In addition, the Home Affordable Foreclosure Alternatives Program and Home Price Decline Protection Incentives encourage banks, as an alternative to foreclosure, to accept mortgaged property back from the homeowner as full payment of the property, which is called "deed in lieu." Often the exchange is for far less than the market value of the home. Depending on the market, the savings are often passed on to homebuyers to enable the lender to quickly offload the property.
5. Make an offer. Your real estate agent will present your offer to the bank, then inform you of the bank's response. Your agent will also handle any further exchanges with the bank regarding counteroffers. If your offer is low and the bank rejects it, you can always go higher. If the bank rejects all offers, you can always move on to another foreclosure. In 2010, there are still plenty of foreclosed properties available in most major real estate markets.
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