Potential homebuyers have heard about the deals to be had among the many foreclosed homes on the market. But there are some important differences between buying from private owners as opposed to bank-owned properties.
Nilva Wise of Re/Max Realty Affiliates said one of the main differences is that foreclosed homes are sold as is, so getting a thorough inspection is important.
"Most banks will give you seven days to get an inspection, and you can back out if you find something in the inspection," Wise said. "If there is something that needs to be repaired and it's required by the buyer's lender, then it would be the buyer's responsibility to make that repair even though they don't own the home."
Another difference Wise noted is that buyers generally need to pre-qualify for financing or show proof that they can pay for the home before they submit an offer.
Mary Jo Brummer of Re/Max Realty Affiliates said she prefers her clients get pre-approved for financing, and have earnest money, a deposit of approximately $1,000 to put down. Brummer also recommended using local lenders.
"They want our repeat business, so they work with us," Brummer said.
Stories about closing deals on foreclosed homes taking a long time aren't generally accurate, according to Wise. She said it can take a bank up to a week to respond to an offer. The lower the offer, the longer it can take.
"The property managers for the banks aren't empowered to take really low offers," Wise said. "Those offers often result in a longer response because they have to go to upper management."
Short sales
Wise also pointed out the difference between foreclosures, which are owned by the bank, and short sales, where the homeowner is still in possession of the property but generally owes more than what it can sell for.
"In order for them to sell it, they have to come down on their price," Wise said. "But if they don't have the means to pay the lender the difference, then the lender has to agree to let it be sold for that price, and that can take months. I've heard of seven months, and I've had clients that have taken five months. You just have to be really patient with the short sale. You can't speed up the bank."
With three different parties taking part in a short sale, it complicates the buying process. Wise also noted that the record number of foreclosures and short sales are a burden on the banks.
"I think the banks are so busy they can't get to them all," Wise said. "Right now they have so many foreclosures and short sales, they can't get to them all."
While short sales are more complicated for buyers, Brummer said it's preferable for sellers to go this route if they can, rather than letting properties go into foreclosure.
"The consequences of a foreclosure can stay with you forever, while a short sell doesn't," Brummer said.
Getting a good deal
Negotiating a good deal on a foreclosed home is much the same as it is for other properties, according to Wise. For homes that have just reached the market, banks tend to be firm on their prices, she said. But as these properties linger, the owners are more willing to take lower offers.
"Banks don't want to keep foreclosed properties on their books," Wise said. "They want to sell them, preferably within 30 to 90 days."
Brummer stressed that having an experienced real estate agent to help buyers through the process is essential.
"They need to work with someone they are comfortable with who can guide them through the process," Brummer said.
Wise said that she has seen the market picking up in the last five or six weeks. She said the lower-priced homes are starting to attract multiple offers, especially on anything under $250,000.
"There are some great deals," Wise said. "I think these prices are a lot less than five years ago."