Skip to main content

InterFirst gauges broker satisfaction with pleasing results

National Mortgage Professional
Jul 06, 2005

Buying a foreclosure property below market value - Five tips from the prosJim SaccacioForeclosure, RealtyTrac, Investment House hunting can be a very daunting experience, especially in today's real estate market. Both investors and homebuyers have been priced out of the market by escalating costs, and good real estate deals are increasingly difficult to find. However, there are bargains out there for those who know where to look. For people willing to do some homework, the foreclosure market offers some of the best opportunities in real estate today. 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 assist them in identifying and researching potential home purchases, as well as the tools and professional resources they need to help them close the deal. With interest rates increasing and ARMs adjusting upward, experts predict an increase in the number of foreclosure properties on the market. RealtyTrac, which provides all of the foreclosure data for both MSN House and Home and Yahoo! Real Estate, has already compiled a list of more than 550,000 foreclosure properties across the country. Foreclosure properties can be a terrific investment. They can also give homebuyers a much more affordable option than traditional properties. However, they're not a way to get rich quick, and a foreclosure purchase needs to be approached in an educated, intelligent manner. Here are five tips to help you close a deal on a foreclosure property: 1. Learn about the foreclosure process and different types of foreclosure properties. There are three basic types of foreclosure properties, representing different stages in the foreclosure process: notice-of-default (NOD) and notice of trustee sale (NTS), which are both pre-foreclosure properties; and real estate-owned (REO), a foreclosure property that has been re-purchased by the bank. For most consumers, buying a pre-foreclosure property from a private homeowner is the best option. It's important that the buyer and seller see the situation as a win-win situation in order to ensure a smooth process. In this case, the seller is able to get out from under a mortgage without destroying their credit rating, the lender is saved the time and expense of foreclosing on the property, and the buyer receives a below-market price on a home. Foreclosure auction sales are typically the domain of the professional investor. These properties are formally in default and sold to the highest bidder at an auction. Buyers are required to be physically present at the auction and must pay 100 percent of the sale price in cash on the spot. Though foreclosure auctions can offer significant savings, they are not for the feint of heart or uninformed. Unless the buyer is already familiar with a particular property, there is usually little time to examine it. And the buyer will be competing against professional investorsand sometimes even the lenderat the auction. Once the lender officially reclaims a home, it becomes a real estate-owned property. While REO properties typically offer more time for evaluation and a more standard bank-managed transaction, their prices are usually very close to full retail market value. 2. Secure financing early It's important for a buyer to be pre-qualified before engaging in discussions with a seller. This ensures that the buyer is in a financial position to purchase the property, and is in the strongest possible position to negotiate. It's best to work with a lender who understands the foreclosure process and can guide the buyer through certain steps, such as ensuring that a property is FHA-compliant. Another reason to consider pre-qualification is that not all lenders finance foreclosure properties. Having approved financing in-hand makes negotiations with the seller and lender easier, and may even make it possible for the buyer to simply cure the default and take over the existing loan to reduce loan processing fees. 3. Engage a real estate agent as a "buyer's representative" Most people hire a real estate agent to sell their home. These "sellers representatives" are charged with making the sale and negotiating the best deal for their clients. A "buyer's representative" has the homebuyer's interests at heart, and are charged with finding the right property and negotiating the best price for their clients. Picking the right real estate agent will make a buyer's life much easier. There are agents who specialize in the foreclosure market, with specific experience in REO properties. Look for an agent with foreclosure transaction experience, as well as knowledge of local, regional and state laws. But it's also important to consider the agent's knowledge of the area, their ability to close a deal, and their access to other professionals (attorneys, lenders, mortgage and title professionals) to ensure that the buyer is in good hands. 4. Do your homework Stocks offer higher potential returns for investors than traditional savings programs, but they are also riskier. Similarly, foreclosure properties are somewhat more risky than traditional real estate properties, but they offer much higher potential savings. With the right examination and due diligence, buyers can significantly reduce the risks. It makes sense to give any property under consideration a thorough examination. Here are eight steps for doing a professional-level exam. *Identify desirable neighborhoods. Identify specific neighborhoods where you'd like to live or own a home. This will limit your search to a manageable size for you and your real estate agent, and give you a sense of relative property values. *Cast a wide net. There are a number of Web-based services that can put hundreds of thousands of foreclosure properties at your fingertips. Since the best savings are often found in pre-foreclosure properties, it's important to check the percentage of pre-foreclosure (versus REO) properties in any database before subscribing. *Determine the property value. Look at the original purchase price and recent comparable property sales to determine the current value of the property. *Verify the amount in default and 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. *Run a legal investing report. Before purchasing any foreclosure property, make sure it is free and clear of any bankruptcies, tax liens or other financial liabilities. *Assess the condition of the property. If at all possible, visit the property, ask your real estate agent's opinion, and review pest and structural reports to make sure that the property is in acceptable condition, or to determine how much of a rehab budget youll need to build in to your deal. *Build a positive relationship with the seller. Before purchasing the property, try to make sure that you're entering into a win-win situation with the seller, so that they'll do what they can to make the process easier and leave the property in good condition. *:Leverage your timing. Knowing when a property is going to be auctioned gives you an extra bargaining chip when negotiating with the seller or the lender. 5. Make a realistic offer 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 may be difficult to deal with, particularly early in the foreclosure process. The keys to a successful foreclosure property purchase are diligence and patience. As a rule of thumb, the best savings can be made at the pre-foreclosure stage, where home owners can avoid a foreclosure and lenders can save the time and cost involved in going through the process. Another critical point in the process is immediately prior to the auction date, when all parties might be most open to a last-minute solution. It's not unusual to save from 10-30 percent of the market value on a foreclosure property, and certain properties offer savings of 50 percent or even more. An educated buyer one who knows how much is owed on the property and what the market value is can usually come up with a realistic offer, one that offers significant savings while meeting the requirements of the lender. Now go out and familiarize yourself with the resources and tools available to take advantage of this formerly hidden real estate market. With the experts pointing toward significant growth in available foreclosure properties, there's never been a better time to line up your resources and become informed. Jim Saccacio is chief executive officer of RealtyTrac. He may be reached at (949) 305-0800 or e-mail info@realtytrac.com.
Fifth Third Bank Expands Down Payment Assistance Program

The program will provide up to $3,600 towards a down payment for families with low to moderate income.

Industry News
Jun 09, 2021
Filo Mortgage Launches Low-Rate Guarantee

National mortgage lender Filo Mortgage is offering to beat competitors' pricing by $1,000 with its Low-Rate Guarantee.

Industry News
Jun 08, 2021
FAU Index Shows Where Consumers Should Buy Or Rent

Consumers are better off renting in cities like Dallas, Texas

Industry News
Jun 07, 2021
Verus Title Inc. Expands Into Dallas-Fort Worth Texas

Verus plans to take advantage of the Dallas-Fort Worth market before expanding throughout the state.

Community
Jun 07, 2021
Freddie Mac Multifamily Extends Forbearance Deadline To September

Freddie Mac Multifamily extended the deadline for requesting a new COVID-19 forbearance agreement for its Multifamily loans to September 30, 2021.

Industry News
Jun 04, 2021
Fannie Mae Launches 'Your Own Story' To Educate Future Homebuyers

Fannie Mae is seeking to help demystify the homebuying process for future homeowners with “Your Own Story.” A new campaign to educate future homebuyers on the entire process.

Industry News
Jun 04, 2021