15 Secrets That You'll Want To Know!

If you want to cash in on some of the great real estate savings available by buying a home in foreclosure (also known as an REOs or bank-owned property), there are some important things you should know first. With so much competition for the really good deals, buyers who are prepared, understand the process and have the right support team have the best success.

Take a look as these important tips - they can give you an advantage.

1. Get pre-approval for a home loan before you make an offer. This is a very important first step. From our experience with bank-owned properties, the banks won't even look at an offer that doesn't have a pre-approval letter from a lender attached. In fact, most banks that sell REOs require that you meet with one of their representatives who will review your financial status. Knowing what your payment will be before you purchase a house is a smart rule of thumb for everyone, and having a pre-approval letter will give you greater negotiating power when you're ready to make an offer.
2. Find a lender who has experience working with foreclosure sales. The lender you choose is critical because he/she needs to understand what the bank requires. Many attractive loans, including VA and FHA loans, have very specific guidelines. If your lender isn't fully aware of those guidelines, it can come back to bite you and can even cause your accepted offer to fall out of escrow - sometimes after you've already spent money on property inspections. In addition, banks that are selling REOs have stringent timelines and want to close by a specified date. If a lender delays the process, you could be charged extension fees or receive a pre diem charge by the bank. If you don't already have a lender with experience working with REO purchase guidelines, give us a call. We can recommend ones who do.
3. Not every REO will qualify for a government loan (FHA and VA). Banks prefer to sell you a bank-owned property "as-is". They may refuse to take offers from anyone who is applying for an FHA or VA loan because those loans tend to have restrictions that require repair work to be done if issues are found during a home inspection or appraisal that violate health and safety codes. For example, FHA and VA loans would require things like broken windows, leaky roofs or water heater earthquake strapping be fixed before funding the loan. An agent who has experience selling foreclosures will guide you to the right options for your personal situation.
4. Find a real estate agent who is experienced in working with foreclosure properties to represent you. Purchasing a foreclosure property is a complicated transaction and a number of things can go wrong. An agent who is experienced will know the unique priorities and expectations of the various banks that sell foreclosures. An experienced agent knows how to write a clean offer that meets the bank's requirements and can help you gain an advantage, particularly when there are others competing for the same home. An experienced REO agent knows which lenders are more likely to fund a loan on time and help you avoid extension fees imposed when things are delayed. While any real estate agent licensed in the state can represent you, you want to choose one who will make sure that you're properly informed and protected. If you need a Realtor® who is experienced with foreclosures, contact us. Our customer care representatives can match you with an agent who can best meet your needs.
5. Select the area where you want to purchase first. Doing this research ahead of time will help you narrow down your search and help you feel more confident about your decision when you're ready to buy a house in foreclosure. If schools, accessibility to public transportation, nearby conveniences like parks, grocery stores or recreational facilities are important to you €“ find areas that meet that need. Our compare cities page is a great place to start to learn more about the Central Coast communities.
6. Get a feel for the price of comparable properties in the area you've selected. We offer several tools to determine property value and recommend that you spend some time researching recent sales. Ultimately, a real estate agent who is knowledgeable about the areas will know the neighborhoods, will have seen the inside of comparable homes within that neighborhood and will be able to give you the best information about value. Once you find a neighborhood that you like, feel free to contact us and we'll put you in touch with a real estate expert who specializes in that area.
7. Gather a list of foreclosure properties that are available for sale. After meeting with a lender, choosing the loan that is best for you, and identifying neighborhoods that meet your needs, you're ready to look for the right property. There are many national sites that provide information about properties in various stages of foreclosure. Many of them charge for this information and, from our experience, offer information that isn't always current. You can get an up-to-date, list of foreclosures, which include short sale properties and bank-owned properties that are listed on the Central Coast Multiple Listing Service by registering for our free foreclosure listings. You can also search foreclosed homes for sale using our property search tool. In addition, you can sign-up for email alerts when new listings that meet your criteria come on the market
8. Don't exclude non-foreclosures when looking to purchase. If someone is trying to sell a home during this down market, they may be very motivated. If they have owned the home for a while, they probably have a decent amount of equity in it, and may be open to selling at a very competitive price. Let your real estate agent know you are willing to expand your search beyond distressed sales as they should be able to tell you about some very good deals. You're likely to have an easier escrow, less restrictions and more room to negotiate when you buy a home from the seller who lived there instead of the bank.
9. Focus on bank-owned properties over "short sales. If you don't understand the difference between a foreclosure and a short sale, this article may help: "There is Nothing Short About Short Sales." While agents are happy to show you all of your options for both short sales and foreclosures, in our experience, the bank-owned properties are usually your best bet. Why? Because you get a quicker response from that bank, there's more inventory, the banks are very motivated at this point (which could mean a better deal), and the transaction is typically smoother and faster than an escrow for a short-sale property.
10. Don't make an offer contingent on the sale of another home. If you have to sell before you can buy a bank-owned property, you may have difficulty getting your offer accepted, especially if there is competition for the home you want. Bank representatives want to get these REOs sold and the paperwork off their desk as soon as possible. Even if you offer more money than another buyer, the other buyer has an advantage if he is paying cash or can qualify for a loan without having to sell something first. If you have to sell first, it may be better for you to look into some of the well-priced homes being sold by motivated buyers who want to avoid foreclosure.
11. Be prepared to buy the home "as is". Often REOs need some type of maintenance or repair, so it's wise to set aside some cash to take care of these repairs once the property closes escrow. For the most part, banks won't correct problems with a house prior to selling a foreclosure. If you make an offer on a bank-owned property and ask the bank to repair certain problems before you finalize the purchase (called "contingenies"), it's likely that your offer will be rejected in favor of one with no contingencies. The offer that asks for the least amount is going to have a better chance of being accepted because the bank nets more money that way.
12. It helps to have a substantial down payment. Banks that sell REOs love all cash offers. Second to that, they like offers with big down payments. REO Banks know how hard it is for buyers to get loans these days so if you don't need to get a loan, then that means one less party (the lender) involved in the process. Lenders require things like repairs or termite clearances, which add more time and potential problems (and deal-killers) to the sales process. And the more money you need to borrow from a lender, the more hoops you have to jump through to get the loan. Those "hoops" can delay the escrow process so a buyer who doesn't have them is seen as a better buyer for an REO property by the bank.
13. Expect a "counter-offer". Obviously the bank is going to want to get the best possible selling price for the property. Often there are several buyers competing for the same property. So don't be surprised if the bank responds to your offer with a counter-offer that is also being given to other buyers. At this stage you'll have an opportunity to submit your "highest and best" offer. The bank then makes a decision based upon the responses it receives. You'll handle this stage a lot better if you decide ahead of time the maximum price that you will spend on the home.
14. Hire a professional to do a home inspection once the property is in escrow. Many banks will provide you with a pest certification. Beyond that, in our experience, the bank-owned properties are sold "as is". Since the previous homeowner is not around anymore, there is no one to tell you about known problems with the home. A good real estate agent will help you find a reputable and thorough property inspector who can uncover problem areas and help you understand what repairs you will need to make if you purchase the property. This is not a time to save money buy using handy Uncle Bob to do your home inspection. Hire a licensed, professional inspector.
15. Be prepared for the fact that the escrow process may be different than any you've experience before. In our many years as real estate agents, we have never seen a market like this. The banks and mortgage companies are not in the business to sell real estate, yet they are inundated with foreclosure properties, creating new challenges for them. The banks are often using out-of-area escrow companies that don't always have the standards for customer services and attention to timelines that our local escrow companies provide. There are a few more hoops to jump through and the process may take a bit longer than usual, but if you do your homework and stay patient, you are setting yourself up to take advantage of some very good real estate investment opportunities.