EDITOR'S NOTE: With foreclosure properties still dominating the housing landscape in the U.S., we've asked our friends at RealtyTrac® to guest author some articles to shed light on the foreclosure crisis. RealtyTrac is the most trusted source of foreclosure information in the country. We hope that the information provided here and in other articles will be beneficial to understanding, avoiding and even leveraging (as an opportunistic buyer) home foreclosures.
By Rick Sharga, Vice President of Marketing for RealtyTrac
It’s no wonder that the foreclosures market is gaining popularity among first-time buyers and real estate bargain hunters alike. Foreclosure properties can often be purchased at 10 to 30 percent less than their market value, making them an attractive investment in a time of soaring real estate prices. But despite what you may see on late-night cable TV, investing in foreclosure properties isn’t a sure fire "get rich quick" formula. Lenders aren’t likely to give properties away, particularly in a real estate market where prices continue to rise. And homeowners in financial distress still have some leverage to negotiate the purchase price, particularly early in the foreclosure process.
"You have to practice both diligence and patience when looking to buy a foreclosure property," explains Jim Saccacio, chief executive officer for RealtyTrac. "There really are some fantastic deals out there, but you have to be willing to wait for the right opportunity, then make a realistic offer so the seller will view you as a serious buyer."
With interest rates ticking upward, experts predict an increase in the number of foreclosure properties on the market. Web-based services such as RealtyTrac, give consumers access to foreclosure and pre-foreclosure information that was previously available only to professional real estate brokers and investors. Today, homebuyers can use these services to identify and research potential home purchases, as well as to find the tools and professional resources they need to help them close the deal.
Sales in this marketplace can move rather quickly, so there’s no time to make uninformed or low-ball bids on properties in a half-hearted attempt to save a few bucks. Nothing turns a seller off faster than a low-ball offer on a fairly-priced property. In most cases, doing so may irritate the seller so much that no further negotiations will be entertained, meaning that you’ve essentially lost any opportunity to buy the property. Conversely, making an uninformed offer that is too high may get you the house you want – along with a never-ending monthly reminder that you overpaid!
Find out what the house is really worth
In order to make a realistic offer, you first need to know what the actual value of the property is. Look at the original purchase price and recent comparable property sales to determine the current value of the property. You can obtain information on recent sales in the area from your realtor or via RealtyTrac’s Comparable Sales Report. Ideally, you should look at sales in the area over the past six months. Then you can drive by each property on your list and note its condition, size, appeal and location. You should also look for properties that are currently listed for sale in the area and research the same information for them. This information, along with a thorough examination of the condition of the property, should give you good feel for what it is really worth.
Find out how much is owed
You should also find out the amount the seller is in default and the remaining loan balance. In order to determine a reasonable offer price, you’ll need to know – at a minimum – how much money it will take just to satisfy the debt to the lender (or lenders). Knowing this will help you determine whether the property is within your price range or unattainable considering your current finances.
The estimated loan amount and default amount are included in the foreclosure documents filed with public records, and RealtyTrac posts this information online for subscribers. Additionally you can order RealtyTrac’s Legal and Vesting Report or Transaction History Report to check for any other mortgage loans on the property. Ultimately, even if you’ve presented what you believe to be a fair offer, you’re likely to receive a counter offer from the seller. That’s to be expected as the negotiation process is a major part of real estate sales in general – even foreclosures. Remember, a successful negotiator in any situation must be informed, prepared and realistic. Again, you must practice patience and diligence in order to get the property you want for a price you are willing to pay.
Lastly, it’s important to remember that real estate purchases can be rather emotional, especially as you grow attached to the idea of owning a particular property. It’s important to know what you are willing to spend on a home, regardless of your emotional attachment to it, so you need to set a limit and stick to it.