|
There are questions
that buyers in any market should be asking before they
make an offer on a property in foreclosure.
April 2009
Is now a good time to buy a foreclosure?
This is a very common
question from both real estate professionals and
prospective buyers. Obviously, because local market
conditions vary, the answer is different from market to
market. But there are questions that buyers in any
market should be asking before they make an offer on a
property in foreclosure.
What’s the first step buyers need to take?
Require buyers you
work with to be preapproved for a loan before you help
them shop for a foreclosure. If they’re thinking of
buying a foreclosure as an investment or second home,
they need to understand that financing the home will be
more difficult and more expensive than financing a
primary residence. Lenders typically charge higher
interest rates and require a larger down payment for
investment or second homes.
How can you tell a bad foreclosure from a good one?
Certainly there are
great deals in many markets for both investors and
buyers looking for a primary residence. But making a
sound deal can be tricky. Buyers need to be wary of
unpaid liens, including mortgage debt, taxes,
construction loans, home equity lines of credit, and
possibly a second or third mortgage. Any or all of these
financial obligations could become your clients’
responsibility when they purchase a property in
foreclosure. Unless the property goes through a
foreclosure auction and becomes a bank-owned REO, the
outstanding foreclosure liens and fees could be simply
transferred to the new owner—your clients. Don’t let
them fall into the same financial trap as the previous
owner.
If I’m a
qualifying borrower, can I appeal to banks for better
loan terms?
Lenders are drowning
in defaults—particularly in hard-hit real estate markets
such as Arizona, California, Florida, Michigan, Nevada,
and Ohio—so they may be motivated to cut a deal. If your
clients have a good credit score, many banks will offer
them=2 0a below-market-rate loan on a bank-owned home.
Unlike paying down with points, this doesn’t cost
anything in fees, and it gives them the ability to spend
more for the home.
What are the costs of buying a foreclosure?
It takes money to make
money. The best opportunities are for buyers with cash.
If your clients are planning to rent out the property or
even resell it for a quick profit, make sure they
consider the carrying costs, including sales
commissions, marketing costs, vacancies, taxes,
insurance, and maintenance costs. Once you’ve calculated
all the expenses, add on another 10 percent to 15
percent. If they don’t build in a "surprise fund," your
clients might be the next foreclosure statistic.
How does choice of neighborhood affect foreclosure
investments?
Clients looking for a
good investment should generally avoid neighborhoods
overrun with foreclosures, particularly newer
subdivisions in overbuilt exurban areas. Investors will
be tempted to buy foreclosures in these areas because
they offer the steepest discounts—but they also carry
the most risk of further depreciation. Look in well
established neighborhoods with good schools and
transportation. If you’re in a market where prices are
still falling, encourage your clients to factor falling
prices into any offer they submit on a foreclosed
property.
Source:
James J. Saccacio is chief executive officer of
RealtyTrac, a Web site that tracks properties in
foreclosure.
Judy Alvarez,
REALTOR,GRI Better Homes & Gardens Real Estate, Palm
City, Fl 34990
Direct: 772-834-6711
|