Foreclosures are great. Obviously, it’s heartbreaking to hear of someone you love going through the foreclosure process or that they’ve found themselves facing such a daunting situation but to the savvy buyer who’s not afraid of a little work they can certainly be a great value… if you know “How to buy a foreclosure” right. Today I’ll tackle a few questions that many have, including: How do I find the right deal? How is it different than buying a “normal” house? And “What do I do if I’m FACING foreclosure?”
Let’s start with how to buy a foreclosure right.
My first piece of advice is to sit down with a real expert in your market. Not just a licensed real estate agent but someone who does substantial business in your market. Good questions to ask are “How many homes do you typically sell in a month?” “What is your offer strategy on foreclosure?” “How is the process different than an individually owned home?” The thing is that buying a foreclosure CAN be a great investment for you where you see instant equity in your home. If a house is worth $150,000 fixed up and it is for sale for $120,000 and only needs some paint and carpet ($5,000) you’re in for around $125,000 and have INSTANT $25,000 in equity! Not everybody buys foreclosures like that though… It makes me cringe to know that buyers see a house that is “$30,000 BELOW MARKET VALUE!” and they instantly thing “Good deal.” If that house has foundation issues, needs a roof, galvanized plumbing, antique electrical wiring, rotted siding, failing windows, or a host of any other big ticket items, you could easily spend $30,000 on a house to fix one or more of those items and spend MORE than you would have if you had just bought the nice one down the street! I know this makes total sense on paper but I can’t tell you how many times I or my clients have lost a bid and looked later at what the house sold for in amazement. Banks that own these foreclosures are a lot of things, but they’re not stupid. They’re trying to sell the house for as much as it will sell for too. Insist on a BIG return for the risk and headache you’re likely to encounter. If you can’t make a great return on your investment – walk. What’s the old saying? “If you’re around the business table and you realize you’re not the smartest person there – you’re the sucker.” Something like that anyways. It’s true in the real estate world too.
I mentioned this in the last paragraph but it’s worth giving another sentence of two of thought. You need to either offer first or last. Foreclosures can be under priced sometimes even when considering the amount of work it would need. I think we could all agree that the best deals go the fastest so BE READY when a foreclosure hits the market, have your homework done on the area (your agent should help with this part), and then you can confidently pull the trigger and know you got a good deal. Since you’re already on our site I’d like to mention that finding the best deals before anyone else is easy with our unique home hunting system at wichitapropertysearch.com. We link directly to the MLS (what Realtors look at) so that you can search for and be alerted to new foreclosures that are in your area within 60 minutes of when they hit the market. We pull fresh data from the source every single hour so that you’re never missing that perfect deal. If you don’t have an automatic search set up for foreclosures in the area you’re looking to buy in, click the link above, create and account, and one of our experts will be in touch to make sure that you are in-the-know.
Buying foreclosed property does have its differences than purchasing a home straight from the home owner. The biggest difference is that you’re typically deal with a computer on the other end. The listing agent will submit bids daily (usually) and the computer will run it’s algorithms to select what it thinks is the best price the market will give for the property. This provides both challenges and opportunities. The challenge is that with multiple offers on a property you’re going to have to bid strong to win – Higher offer, bigger earnest money, faster closing, etc. The opportunity is that an aggressive real estate agent will submit multiple offers on your behalf. We’ve done this dozens of times where the REAL offer was $80,000. That offer would go in on day 1. Then days 2-off the market we would put in offers of 30k, 50k, 42.5, and so on. It is extra work but it can really make the bank think twice about that first offer of $80,000! It’s a great strategy to influence the computers algorithm when it’s deciding how to accept, decline, or counter incoming offers.
The biggest piece of the puzzle though for most is “How did you arrive at that $80,000 number?” [Gasp!] I’m so glad you asked.
If you only read one item in this blog – read the above sentence. Read it again and again. Say it out loud. Tattoo is on your hand you sign real estate contract with. (mmmm not really) But DO work backwards. Here’s what I mean:
Start with the FUTURE market value of the home. What will it really be worth in A+ shape? $200,000? Perfect. Knock of 5%.
What kind of margin do you want to have? 10%? (MINIMUM) 20% (Good) 30%(Aggressive)? Let’s say 20%.
190,000 – 38,000 = 152,000
How about repairs? Did your contractor tell you around 20,000? Perfect. Add 10% to that. (Something will go wrong. Trust me.)
190,000 – 38,000 – 22,000 = 130,000.
Your MAX offer price is $130,000. Now talk to your real estate agent to get the lay of the land and how many offers are coming in. If others are offering more than you are already, check your numbers and estimate. If you’re right – walk. Walking from 10 bad deals is better than winning 1 bad deal. There will be more opportunities. (That house was probably haunted or snake infested anyways or something… yuck. You didn’t want it.) When you’ve done your homework and you put the effort in, you’re going to wind up with a great head start to your equity in your home and the pride you have knowing that you created jobs for others and wealth for yourself in the process. Congratulations!
Now, this is the not-so-fun paragraph. If you’re looking that hairy monster of foreclosure in the face there are options. There aren’t a lot of good options but there are less-bad options. I’m sorry you’re going through this and I know the fear that you’re feeling. The best thing for you to do is to contact one of our real estate pros and set up a meeting to look at your scenario. Many times we can initiate what’s called a “Short Sale.” It’s a cousin of a foreclosure, and it will leave a shiner on your credit, but it certainly won’t hurt as bad as having “FORECLOSURE” on your record. Let’s say you bought your house for 200,000 and had paid off 200% of it. You would owe $180,000. But if the market will only bring $170,000 for your house… eek. You’re in a squeeze there. So what our agents can do it negotiate with the bank to get them to take $170,000 (the market value) as the payoff and write off the $10,000 difference. The thing is, you never know exactly what the market value for your house is until you sit down with an agent. So get in touch NOW, not later so that we can help. We also buy them if you’re in a hurry and we can make a win-win deal work. Just click HERE and fill out the form and we will be in touch shortly.
There you have it. If you need more questions answered just get in touch with one of our agents on the site and we’ll gladly give you expert guidance to help you get where you’re going.
It’s YOUR move, Wichita!