According to RealtyTrac, as of April 2018, there were more than 600,000 properties in the U.S. in some stage of foreclosure. While the numbers of foreclosed homes are significantly lower than at the peak of the U.S. Housing Crisis, with more than a half million lender owned homes on the market, buyers still have a solid opportunity to find a good deal.
But be on notice - buying a foreclosed home takes time and patience. The process for buying REO (“Real Estate Owned”) properties is not like the traditional home buying process. BBVA Compass Director of Mortgage and Home Equity Originations Jose Pascual says that buyers could find the deal of a lifetime, but people tend to be surprised by the effort it takes.
“Nothing about buying a foreclosed home is similar to buying a typical home, except maybe the preapproval process,” he said. “That said, the reward from a monetary standpoint can far outweigh the temporary pain of the process, so staying the course can be hugely beneficial to the buyer.”
To shed some light on the complicated process, Pascual gives the following tips for buyers in the market for a foreclosed home to remember:
- Find a real estate agent that specializes in foreclosure. Pascual says this is important because they’ll be able to guide the buyer through the process, and act as the intermediary with the institutional owner of the real estate. They’ll also know what is on the market and potentially even listings that have not yet made it to the MLS (Multiple Listing Service).
- Get preapproved. This is the most similar part of the process to traditional home buying, but it is also critical for purchasing a foreclosure, Pascual says. The owner of the real estate - most often a bank - wants to offload the property from their books, so they are interested in selling the home quickly and at a good price. As a result, they’re not likely to wait for a buyer that doesn’t yet have financing in hand.
- Review comps, but don’t expect much - if any - negotiation on the asking price. Pascual advises reviewing the comparable pricing of other homes in the neighborhood, but cautions that foreclosures are typically priced low to sell fast, so the owners don’t typically leave room for negotiation.
- Get a home inspection. Buyers should expect that the home they are purchasing will be in some form of disrepair - most have sat vacant for period of time and/or had damage done to them by the prior owner - so mentally preparing for spending time and effort fixing the damage is in the buyer’s best interest.
- Have patience. Purchasing REO properties through a bank often come with long timelines, frequent delays, and layers of approval. It’s not uncommon for weeks to pass before the buyer hears from the seller on some parts of the process. Even so, says Pascual, it can be worth it in the end to find your dream home at a dream price.
For more on purchasing a foreclosed home, click here to read “Tips for Buying a Foreclosed Home.”
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