Everytime you turn on the TV, all you hear about is how high the foreclosure rate is in our country, especially in New Jersey. What is frustrating is knowing there are deals out there to be made, but first time investors, not really knowing where to start. Here are a few things to consider when purchasing a foreclosure property:
1. There are deals everywhere, in every market. Sometimes, you might just find a desperate seller who is willing to give more of a discount versus a greedy bank. Its best to search all the deals and put in offers to really determine a seller's motivation. Some also great Deals are HUD properties. These properties close in 45 days, offer great financing, and usually have deeper discounts than foreclosures.
2. Foreclosure properties are great deals, but hard to finance. The banks are looking for larger deposits to hold the properties, and larger down payments. With a regular property you can put as little as 3.5% down, but not so with a foreclosure property. The best thing to do if you do not have the cash (which most people don't, is to talk to a mortgage professional. If you need the name of some good ones, email or IM me)
3. With most deals, sellers are happy to hear that you are willing to close in 2 weeks. It gives you an edge in the market, because you have the flexiblity/finances to close quick. However, the banks have NO sense of urgency. I have some deals where I am the REO/Foreclosure agent and it has been 9-12 months, and we still have not closed on the deal! You would think that the banks are excited to have someone get them out of a mess quick, but they are a government agency like anything else, and therefore go through all the motions.
4. Chances are settlement will be set up, then cancelled, set up again, then cancelled.... The point I am making here, is foreclosures are great, for an INVESTMENT property, not for a primary residence! There are so many people out there that are living in hotels because they tried to get the family a good deal, and they still don't know when settlement is!
5. When you buy a foreclosure, you must take the property in "AS-IS" condidtion. This does not mean you cannot have a home inspection. It if your legal right to have an inspection, the only difference is there is no "seller" to fix any issues you find. With that being said, foreclosures are a great opportunity for an advanced investor with a team of contractors already in place.
6. The bank is only allowed to consider one offer at a time. This is good and bad, depending on how you look at it. What typically happens is the agent representing the property will accept all of the offers and ONLY present the best and highest offer to the bank. For example, if the asking price is $200K and the offers are $150K, $179K and $190K, the bank will only know that one offer of $190K was it. Even if weeks pass an another buyer comes along willing to pay $200K, the bank will not even see it, protecting the buyer with the first offer of $190K. Its good because it protects you as the buyer if you had the highest offer, its bad because the foreclosure properties usually go for the asking price.
7. Not every agent has experience in dealing with foreclosures. Of course they will tell you that they are, and it is important that the agent you are working with is REO Certified, has dealt with these types of properties and understands the difference in negotiating with a bank versus a private seller. Most people are under the impression that its best to call the agent whose name is on the property. That couldn't be further from the truth! By doing that you now have someone negotiation for you that knows both yours and the opposing parties bottom lines!
Of course, this is just a basic overview of how to find a foreclosure property...so if you need more info, just post a comment or email me directly.