After the real estate crash in 2007, those with cash scooped up some real bargains in foreclosure. There was a glut of foreclosures and very few buyers in the market. Lenders sold houses at huge discounts to get rid of them. With the economy coming back and prices actually rising on homes in 2014, those huge discounts are hard to find. The good old days may be gone. It’s becoming more and more a seller’s market. Inventories are tight and lenders know it. Lenders are negotiating harder and lowering price less in this current environment. Foreclosed homes can still be good investments, buyers just have to be more diligent.
Buyers typically acquire foreclosed properties in one of two manners, foreclosure auction or REO. An auction is just what it sounds like. Buyers bid on the property and the high bidder gets the home. An REO is a foreclosed property that the lender has already taken back, thus REO or Real Estate Owned.
Buying at auction is not for beginners. You typically have to bring a cash deposit to the auction to even bid. This number can vary from $2,500 for a parcel of land or a mobile home to $25,000 for an upscale home. The winning bidder is usually required to increase his deposit to 10 percent of the final purchase price that was determined at the auction within one day and then has 30 days to close. Pretty tough standards, but it gets worse. You usually cannot do any inspections on the home, and some you cannot even go inside. You must personally investigate to see if there are any liens, mortgages, taxes on the property that are due or if there are any code violations. If there are any tenants, it is your responsibility to evict them. This type of foreclosure purchase is wrought with peril. Great bargains can be found, but so can money pits. In most recent auctions, the winning bidder has been the lender themselves. The lender will bid at the auction in the attempt to push the price up to the amount that is owed on it. If an acceptable price is not reached, the lender takes the property back.
The second way to buy a foreclosed home is from the lender after it has taken the property back. The lender may take it back at the auction, they may have taken in back thru an uncontested foreclosure, or the borrower may have surrendered the deed in lieu of foreclosure. No matter how the lender acquired the property, it is now theirs to sell. At this point, most banks list the property with a real estate broker. At this point, it becomes much more like buying a house from an individual. You can do property inspections, put contingencies in your offer, and have more time to get a mortgage in place.
The lenders have recently been much less willing to adjust their asking price on homes that they have taken back. The lenders are very aware of the market. They know inventory is shrinking and that prices have risen. They are much less willing to lose a large amount of money on a house they have taken back under these market conditions.
So are there foreclosure bargains out there? Yes there are still some out there, but there are fewer and they are harder to find. As always, use a qualified real estate professional to help you find foreclosures and identify bargains. Happy hunting.
Rick is a realtor, real estate author of the book “Help, I’m underwater”, and long-time Windham resident. You can reach Rick with all of your real estate questions and needs at columnist@TheWindhamEagle.com.