Buying Foreclosure Homes and Short Sale Properties

Everyone loves a bargain. But, finding a super deal on a home for sale is often more hype than reality. There are ways of course that you can save money with your purchase, like by buying a foreclosed home, but be prepared that you may pay for the savings of cash in other ways; like with your time, effort, patience, and frustration.

There are some misconceptions out there and here are few myth busters:

Does a short sale property mean big money savings?

When a homeowner has fallen behind and is at risk of defaulting on their mortgage they can approach their lender and ask if they can do a short sale of the property, meaning the bank will agree on the sale, take the proceeds as payment on the mortgage owed (sometimes split with other lenders who are owed, say with a second mortgage) and hold off on foreclosure of the property.

It appears on the surface like it could be a great deal or a buyer, but you may need to take a closer look. The buyer’s offer needs to be accepted not only by the troubled homeowner, but by his lenders too; and they are interested in getting as much of their money back as they possibly can.

So this means that you will not be getting this home for a deep discount. The bank needs to approve all the terms of the short sale. The approval process can take a long time, meaning weeks or months, and can suddenly end with your offer being rejected.

Also, the home will probably be sold “as is” since the financially troubled homeowner is not likely to make repairs and the bank is not going to agree to foot any repair bill. But, all of these concerns aside, you can sometimes get a home for a reasonable discount through a short sale. As a buyer, you need to go into the deal knowing that it will take time and effort and it probably won’t be a huge savings, but it can trim the cost of buying a home if you get the right deal.

Are foreclosures the bargain hunter’s dream?

Banks foreclose on a home once the homeowner has gone into default and can not pay their mortgage. If the home did not sell in a short sale, the bank takes possession and then sells it themselves. Buyers may think that these banks have many foreclosures for sale, so it will be easy to come in with a low offer that will eagerly be accepted. That is not always the case.

Lenders may be willing to be slightly flexible with the sale price, but they are also looking to maximize what they can get for foreclosed properties. Also, keep in mind you may have other buyers vying for the same home and this creates competition, which means the bank will hold out for the highest bid.

Purchasing a bank owned property can take a long time. Usually months are needed since a board or committee makes the decisions and you must wait for them to meet and agree to all the terms throughout the process. After waiting all that time you should also know that the previous homeowners will not usually leave the property in great condition when handing it over to their bank, so unexpected and costly repairs may be needed once you finally get those keys.

Should I go without a real estate agent to cut my costs?

Some people think they can save themselves some money and go without the professional help, guidance and negotiating skills that come with hiring a real estate agent. While it is true that a few people can go it alone and handle it all with good results, many people learn that going without an experienced professional acting on their behalf actually can cost them money in the end. Added to that, is a ton of frustration and stress because of lack of experience, legal knowledge of the business, contracts and procedural tasks.

Essentially, it is like taking on a do-it-yourself project that you may or may not be able to do well on your own. Even if you do manage it well, you will be taking on a lot more stress and difficulty than if you hired a professional to handle the project. And you might unknowingly miss an important detail that can be costly to your bottom line.

A Realtor will make certain that you are looking at just the right properties that fit within your budget, meet your desires in a new home and all this saves you time and effort in your search. Agents are experienced and know the real estate values in the area, so they can price a home correctly... and do so based upon research that backs up what the home’s true value is. The can perform an analysis that will show you how much to offer on a home and still get a good deal and not be out-bid by other buyers. Agents have experience with contracts and negotiations and the entire buying process and selling process. Not having someone with this knowledge and skill working for you can cost you money.