How to Buy Foreclosures, Short Sales, and REO's
The real estate market remains active, offering more foreclosed property in recent years compared to times past. Foreclosures, short sales and other real estate owned properties are common in some markets, thanks to a plunge in home values, bad loans and homeowner financial problems.
Finding affected properties can be done through websites, lists offered by banks and through the help of knowledgeable real estate brokers. By developing a plan, you can find, inspect, place a bid and take ownership of select distressed properties.
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Instructions
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Explore foreclosures, short sales or both. Foreclosures and short sales describe two different real estate transactions, though both involve the sale of distressed property.
A foreclosure, which is sometimes called real estate owned properties (REOs) are those homes which have passed from the owner to the bank through the foreclosure process.
A short sale transaction is between you and the current owner although the bank holding the note must sign off on the deal first because this means that they will have to approve a loss that they will have to absorb.
Certainly, you can pursue both, but if you want to narrow your plan, consider one or the other.
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Find available properties. Foreclosures are easier to find as that information is sometimes posted on real estate signs placed on front lawns of homes in many neighborhoods. But not every home that has been foreclosed has that information disclosed. Instead, you can find foreclosures through various websites including realtytrac.com and foreclosures.com. You can also find listings by visiting bank websites or requesting a list directly by calling banks in your area.
Short sales are usually harder to find, but sometimes that information is featured among the listings on realtor.com. Terms such as "pre-foreclosure" or "notice of default" or "subject to bank approval" in ads or listing details can tell you that the current owner may be looking to make a deal. Work with a real estate agent who is knowledgeable when it comes to distressed properties. He may know which homes can be had through a short sale.
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Make a contingent offer. Many foreclosures are sold as is, which means that the price listed is what the bank will take for the distressed property. But, in a market saturated with real estate owned properties you may still have room to negotiate.
Make an offer for a home that you like with contingencies in place including a home inspection that you will pay for. Once an inspection has been completed, then adjust your offer accordingly.
With a short sale, determine from the homeowner how much they owe on the house. If your bid is within 10 percent of the outstanding balance, then the lender may consider your offer. If discounted further, you may have a more difficult time having your offer taken seriously. As with a foreclosure, get your own home inspector to check out the home's condition.
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Close on your home. Arrange financing through whatever sources work best for you, including commercial banks and mortgage companies. Look at FHA financing if qualified, as well as VA loans and other government programs.
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Tips & Warnings
Get approved for a mortgage before presenting your offer on a foreclosed home or short sale. Banks and homeowners are more likely to work with you if you are mortgage ready.
Watch out for liens on foreclosed or short sale distressed property. Work with an attorney who will make sure that language is included in the sale freeing you from all claims against your property.
