Buying a Foreclosure Property or Working a Short Sale
To simplify this discussion, let’s start with defining both terms. Simply, a short sale occurs before the bank or lender forecloses on a property and foreclosure sale occur after the bank takes the legal action to foreclose. A foreclosure sale is more appropriately defined as the sale of a home that has been foreclosed and can occur during auction, or, if the bank retains ownership through, sale on the open market.
Buying a Foreclosure at Auction
First a word of caution. Most properties that go to auction are not sold at auction because the minimum bid is higher than the value of the property. Further, for those that do sell, you are competing against professional investors. The nagging thought that I want to plant in the back of your mind is, “if the professionals stopped bidding, or didn’t bid at all, why should I bid?” If the price, the property, the condition, the neighborhood, cash flow and so on meet your criteria, you are fine. If you’re criteria is not met, don’t walk, run away. If you don’t have criteria or know what you’re doing stay away from the auction completely.
Don’t get into a bidding war and end up paying too much. There is no guarantee that simply because the property is a foreclosure sale that you are going to get a great deal.
Real Estate Owned (REO) Properties
When the property does not sell at auction, the property goes back to the mortgage lender who then offers them for sale. Banks are not looking to dump property. They are looking to get the most for the property that they can. They have people dedicated to the process who are tasked with selling at the highest price. If you go after one of these REO properties, make sure that you assess the value against comparable properties. Understand that you will be buying “AS-IS” and that you will be responsible for any inspections and repairs.
If you are making an offer, expect a counter-offer. The offer must meet your criteria as well as the bank’s criteria. In other words, the price, condition, and everything else is right for you.
Can you get a good deal? Yes, but be careful and know exactly what a good deal means for you. Make your offers and stick to your plan. This approach requires discipline and patience, but if you are persistent, you can save some real money over comparable properties.
We believe you have the best chance of getting the best bargain from the lender before the foreclosure occurs. This is where the short sale comes in. You are making an offer to the bank before they go through the expense of foreclosure which can be very high. See our article on the cost of foreclosure.
When you make an offer before the bank goes through the cost of foreclosing, the bank can factor those costs into their decision and accept less than after they foreclose. Once they foreclose and incur the costs, it’s too late.
Short Sales Can Save You 20 to 40 Percent, but again you must have great patience, do comparisons and set criteria for you purchase. You may need to make several offers before one is accepted.
If you are purchasing a short sale or an REO, please use a real estate agent. As the buyer, you don’t pay the commission and you can get expert advice and guidance on property values and dealing with the banks. If you don’t use me, please use another Daytona Beach area realtor. If you’re from another area, please use a real estate agent in your area.
The Daytona Beach homes market has many foreclosed homes, REO properties and short sale opportunities. We have been focusing on identifying short sale opportunities over the past week. We just listed 20 short sale opportunities. Contact me for the list.