Buyers /On July 12, 2013

As a home buyer, should I look at foreclosures?

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Foreclosures, or Bank Owned properties (often referred to as “REO,” or real estate owned) can be a great investment. The process is a bit different than with normal resale transactions, and accordingly it is important to work with an agent who is familiar with the process and can guide you through the myriad of decisions to be made.

Here are some of the primary difference between buying a foreclosure and buying a resale home:

1. Because the property is owned by a bank, there is no “emotion” in the negotiations. Most bank portfolios are managed by asset managers who are employed solely for this purpose; they make their decisions on offers based on a formula and a bottom line – not based on all the extenuating factors that often characterize a normal real estate transaction.

2. Most banks and asset managers use their own contracts and addenda, and they are typically very seller-friendly. In many cases, changing or amending the contract is not an option. So, if you’re unable to live with the terms of the contract, buying a foreclosure may not be the best choice for you. Again, it is very important that you are working with an agent who represents your interests, and can explain the agreement and addenda to you carefully before you make a decision.

3. In today’s market, most banks and asset managers will allow a buyer to have a home inspection…BUT they will not agree to make any repairs. So, essentially, the home inspection is for your information (and in most cases you have an option to terminate the contract if you’re not satisfied with the condition of the property as a result of the home inspection – but you must act within a tight window of time, so be sure you review these provisions carefully). These policies can vary from one bank/investor to another, and the listing agent can generally advise on what the typical protocol is. Another factor to consider is the overall condition of the property – because the bank will generally not make repairs, you may have challenges getting certain types of mortgage loans for the property. Your Liz Moore REALTOR and lender can help you sort through these types of challenges.

4. Most banks/asset managers transfer title using a special warranty deed as opposed to a general warranty deed. It’s important that you get owners’ title insurance to protect your interest. There are also often other provisions such as a per diem penalty for late settlements.

There are far too many differences to list here, so suffice it to say that it is important for you to have representation by an agent who has expertise in the bank owned/foreclosure process. There are some good foreclosure and bank owned deals available – especially if you are willing and able to tackle some of the repairs yourself. If you are interested in further exploring foreclosures, please let us know and we'd be happy to connect you with an agent who can help you.

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Lynnette Tully

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Liz Moore & Associates is a boutique real estate agency renowned for having the region's top agents, with extensive market knowledge and local expertise that is only achieved through relentless training coupled with Liz's extremely high standards for professionalism. When you're buying or selling a home, experience matters.