As a real estate broker who specializes in listing and selling foreclosure and pre-foreclosure properties in Southeastern Wisconsin, I often receive emails and phone calls asking how to get a good deal on a foreclosed property. There are many misconceptions about buying forelcosures and often times would be investors have unrealistic expectations about things such as the flexibility in list price, buying HUD homes and getting financing for investment properties bought as an REO property.
Here are 10 steps to getting a good deal on a foreclosure in Kenosha, WI (or ANY area for that matter).
#1 DO YOUR HOMEWORK AHEAD OF TIME The first step to getting a GREAT DEAL on a foreclosed home is KNOWING what a good deal looks like before you ACTUALLY SEE ONE. All to often inexperienced investors pass on good deals because they don't know which deals are good, or they make a mistake paying too much for a property because they thought they were getting a good deal when they were now. Another "rookie mistake" is basing whether or not they got a good deal on how much the seller took off the list price. Some of the BEST deals my investor clients bought were for over list price, while I have seen buyers bid 70-80 percent of list price on listings that were overpriced by 40%.
Decide what area or areas you want to buy a property in and research the area(s) you are looking in. You will need to know what properties are currently on the market, how long those properties have been on the market and what recently properties have sold for. You may need help with this task, and partnering with a good real estate professional in your market who is willing to set up automatic searches or provide you access to an "IDX" enabled search can help you find lots of good information.
Some of the items you need to look at are average price per square foot for the area you are looking in, and price as compared to the most recent tax assessment. Tax assessments are typically a very poor indication of actual value of a property, but with the right amount of research you can see as a percentage a assessed value a pattern in recent sales. Also you need to look at the PRICE TRENDS as opposed to just the current market values. Take a look at sold prices from two years ago, one year ago, six months ago and the past 90 days to get an indication what direction and rate prices are moving in. This gives you a much greater point of reference than just the properties on the market now and the most recently sold comparables.
#2 HAVE YOUR FINANCING IN PLACE Almost all REO sellers as well as banks considering short sales require proof of funds or a pre-approval letter prior to accepting an offer. Additionally some Asset Managers and REO sellers require that you receive a pre-approval letter from the lender that they specify before accepting an offer. This means you must be willing to have another lender pull your credit. Find out from your Realtor whether or not the property you are writing on requires this type of approval and be prepared to answer the questions that the lender is going to ask. Also make sure you are selecting the right type of loan product for the property you are buying. If you are looking for a great deal on a foreclosed house that you plan on making your home, there are fantastic programs out there that will even allow you to borrow some or all of the rennovation costs such as the FHA 203(k) loan and the Homepath Rennovation loan. If you are buying a foreclosure as an investor, there are other construction loans out there, but you may have to shop numerous lenders.
#3 SELECT AN AGENT THAT UNDERSTANDS YOU NEEDS It pains me to say this but it's a fact..... Many real estate agents out there are LOUSY. When I teach real estate pre-license classes to people who are studying to obtain their real estate license and when I teach my sales and marketing classes to agents in the midwest region, I tell my students that MOST REALTORS STINK AT THEIR JOBS. I tell them this because I want them to be different and because I am a true believer in raising the bar. Don't settle for substandard knowledge of the market or poor service. Find someone who truly understands both your needs and desires and the market you are looking in, and is willing to work hard for you. This is a tall order, but you willl find there are good agents in EVERY market area. When you find the agent that you know you want to use, STICK WITH THAT AGENT. Their knowledge is valuable to you, and your loyalty is what their livelyhood depends on. More importantly, your loyalty can save you tons of money and help you to avoid very costly mistakes.
#4 DON'T OVERLOOK SHORT SALES Many agent will steer their buyers away from short sales because the approval process takes longer than a traditional sale or even an REO sale. While many listing agents who list short sales (sadly) have NO IDEA what they are doing, there ARE agents who are good at short sales. Ask the agent you are interviewing what their experience is in negotiating short sales and don't accept vague answers. If you are working with a BUYERS AGENT that is good at negotiating short sales INSIST that YOUR agent is the primary negotiator between you and the seller's lender. They will have to write that in the offer to purchase and the listing agent will often object, even if he or she does not know how to get a short sale done. There is no logical reason for this objection and refusal except for the fact that the agents PRIDE is even greater than his or her INCOMPTENCE (often to the detriment of the seller) and can't get out of his own way long enough to get paid. However if your agent knows what he or she is doing, often they can overcome this roadblock and work with the lender to get you a terrific deal
#5 DON'T GET EMOTIONALLY TO A HOUSE No matter how much you think you just found the STEAL OF A LIFETIME, there are going to be other deals out there. Good deals are like busses these days with one rolling by every 10 minutes. When you find a deal you like, write the deal and be prepared to be rejected. If you write enough offers, you will get end up getting the deal you are looking for.
#6 BE PREPARED TO WAIT With REO sales you can expect 48-72 hours of turn around time. Many times your agent will have nothing more than a verbal answer from the listing agent that your offer is accepted and a checklist of things the lender needs in order to get you a signed contract. This is NORMAL when buying a bank owned property, even though it flies in the face of everything real estate professionals are taught in Wisconsin with regard to contracts, deadlines and the concept of "Binding Acceptance". After you receive an accepted contract for sale you may find that although the lender EXPECTS you to perform on time with regard to your home inspection, loan approval and closing date deadlines, they are under NO obligation to perform by their deadlines and will often ask for extensions and seldomly close on time. This is also normal and just goes with the territory of buying a foreclosure. Additionally a short sale typically takes 6-8 weeks for approval and I have seen them take OVER A YEAR.
#7 MAKE SURE YOU PROPERLY ESTIMATE REPAIR COSTS - Another common mistake is not knowing how much repairs are going to cost. Get SEVERAL estimates on the repairs you plan on completing, even if you plan on doing the work yourself, base your offer price on having to get the repairs done by a licensed contractor. After all, your time has a value as well.
If you follow these steps, you are more likely to meet with success, and find the buying experience to be a rewarding one.
Ralph D. Nudi