There are many reasons why buying a foreclosure could work for a home shopper, most notably the price. You also don't have to handle a homeowner's quirks since a foreclosed home is owned by the bank. That means the sell is generally handled by a professional asset manager with a realistic pricing approach to the home.
Michael Brock, owner and broker of Foundations Realty Group in Atlanta, works with clients looking for foreclosures.
"The assumption that all foreclosures are sold below market value is incorrect," he said. "The best way to find a bank-owned property is to hire a broker with extensive experience in this area of the market."
In many cases, this service is free of charge to the potential buyer too.
"It is not uncommon for a bank-owned property to actually be listed above market value," Brock said. "It is fair to expect somewhat of a discount, but buyers who are expecting a 20 to 30 percent discount on a bank-owned property are probably going to be searching for a long time."
Brock said there are plenty of opportunities to purchase a foreclosed property in Atlanta, but he suggested buyers also look at short sales, estate sales, and other mispriced opportunities.
With that in mind, he cautioned that potential buyers watch out for these seven things when buying a foreclosed home.
1) In today's market, many bank-owned properties are underpriced and selling in less than a few days. Most of these properties will have more than one offer. Rather than counter-offering each bidder, the asset managers will usually ask each potential buyer for their highest and best offer. The majority of these winning bids are above the asking price. It is important to base an offer on what the home is worth instead of basing an offer on the bank's asking price. The mentality of always offering less than the asking price is nowadays a losing strategy.
2) Most banks will still allow potential buyers to have a due diligence period. Many of these homes have been sitting vacant for years. A potential buyer should use their due diligence period to complete a detailed home inspection and survey. While most asset managers will not agree to make repairs, a potential buyer will usually still have the right to cancel the contract within their due diligence period.
3) Some banks will refuse to turn on utilities for a home inspection. If this is the case, a potential buyer should have an aggressive budget in mind for potential unforeseen repairs.
4) If a potential buyer is looking for a bank-owned property, they should interview several brokers who are very experienced in this type of transaction.
5) Most bank-owned properties are still sold with clear title. As in a traditional sale, the closing attorney will do a detailed title search prior to the closing. It is highly recommended that a buyer obtain title insurance when purchasing a property that has been foreclosed on.
6) Speed is king right now. The good deals are selling extremely fast. A potential buyer and their broker need to be analyzing deals in real time and viewing properties the day they hit the market.
7) Another way to buy a foreclosed property is to show up at the courthouse steps and bid on the property. This type of purchase should not be attempted without expert legal advice and detailed knowledge of the process. This type of bank-owned property will usually not have clear title, may still be occupied, and often cannot be viewed before buying.
As for financing a foreclosure, Brock said all the traditional sale methods are available on a foreclosed property. In addition, some banks offer special incentives and financing on their own properties.
"The banks have made buying a bank-owned home fairly simple," Brock concluded. "With a good broker, a first-time home buyer should be able to purchase a bank-owned property without much trouble since, in my experience, the asset managers are looking for clean offers."
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