Should I Buy a Foreclosure?

by Del Fava | Parker 03/22/2020

Photo by Alexander Stein via Pixabay

If a home is in foreclosure, you can buy it for less. Great deal, right? It can be, but there are pitfalls, and you need even more caution than in a regular real estate transaction.

Stages of Foreclosure

Foreclosure can take months or even years depending on the regulations of the specific state, but the stages are the same:

  1. Pre-foreclosure. The owner has been given notice of pending foreclosure but for now still owns the home. In this case you negotiate with the owner.

  2. Bank-owner. The former owner has been evicted. If the bank doesn’t find a buyer the house will be put up for auction.

  3. Real-estate Owned (REO). The home did not sell at auction. A misleading name because the bank still owns it. And needs to get rid of it.

How do I find a Foreclosure?

If you haven't bought one before, your best bet is to work with a real estate agent who specializes in foreclosures. Some may have credentials: the Certified Distressed Property Expert (CDPE) or the Short Sales and Foreclosure Resource (SFR) designation. Foreclosures are listed on the same platforms as other homes, plus they may be found through banks, local city halls and courts.

Do I need cash?

Not necessarily. But if you'll use a mortgage, get it pre-approved. You’re likely to be competing with cash buyers.

What should I watch out for?

Many foreclosed properties are in poor shape. If they haven’t been inhabited, and maintenance has been neglected and air conditioning hasn’t been running, there could be mold, debris and internal damage. Distraught homeowners sometimes make off with appliances and the copper. There may be liens in addition to the defaulted mortgage. Get an inspection, have the title checked out and assume there’s going to be work to make it livable.

How much should I pay?

Your agent can run a comparative market analysis (CMA). You should pay significantly less than for an unencumbered property to make up for the risk. Professional foreclosure buyers sometimes use a formula of 80 percent of a comparable standard property less cost of known repairs. For example, a $300,000 house that needs $50,000 in repairs should be (80% * $300,000) – $50,000 or $190,000. A skilled agent can help you be competitive without putting yourself in a bind.

Is a foreclosed property right for me?

It will take more time and effort than a regular purchase but can save a pile of money. A DIYer or a person comfortable managing major rehab projects has a head start. If you have strong nerves, high risk tolerance and the ability to be flexible, a foreclosure might be the best deal you can make.

About the Author
Author

Del Fava | Parker

  

Doug was born and raised in Sonoma County with over 40 years in the real estate business; a well-connected, down-to-earth “people” person; devotes a great deal of time to working with both buyers and sellers in person.

Shannon has many years in business organization and administration; with over 15 years in the real estate industry; strength is in marketing properties and follow-up; devotes a great deal of time to the “behind the scenes” logistic work.

As a team we represent two strong elements of personal contact and business effectiveness. We have perfected aggressive networking and marketing systems which attract clients locally, nationally and throughout the world. These elements are expected by consumers in today’s fast-paced, high tech, and competitive marketplace.

We have successfully represented buyers and sellers of luxury estate, ranch, vineyards, investment, commercial and residential properties throughout Sonoma, Napa, and Marin counties for over forty years. We have invested time and money to establish a long-term position in the real estate industry; emphasizing an honest, hard-working, straightforward business approach. We have developed a system of working together that offers our clients comprehensive and personalized service along with negotiating techniques that consistently result in a win/win situation for everyone.

Consistently recognized as industry leaders, we passionately believe that contributing time and expertise to the community has enhanced their continued success and recognition as experts within the real estate community.

At W Real Estate, our clients and their goals are our first priority, without compromise. Whether buying or selling, our network is far reaching, and we ensure each and every client is completely satisfied. This is our commitment to you and our community.

We not only work here, we live and play here. We are proud of our community, and we know it like no other--the people, the locations, what sets them apart. And this is what sets us apart.

W Real Estate is Sonoma County's top real estate brokerage, year after year. Our agents consistently rank in the top 1% of all agents in Sonoma County, and sell properties at a higher value than our competitors. When you hire a W Real Estate agent, you hire a team of exceptional real estate professionals. Not only will you receive the best real estate advice and outcome with your chose agent, but you will also benefit from a full-time marketing expert, a dedicated listing manager to coordinate the logistics of prepping and showing your home, and a highly skilled transaction coordinator to manage the complicated paperwork, just to name a few. We're here for you - all of us.