Purchasing a Foreclosure Property
Foreclosure properties sometimes look appealing. There are certain things you need to look for before you purchase one. Here is a few tips and guide for better understanding how Foreclosures work
In order to make an offer on a Bank Owned Property, you must have the following ready:
- Pre-approval letter stating that the income, assets, and employment have been verified.
- Proof Of Funds (statement showing account balance)
- Cleared Deposit check of at least $1,000 or sometimes up to 3% of the purchase price (fully refundable prior to end of review period)
- Fully Signed and completed Contract for Purchase and Sale with no financing contingency (cash offer)
Can I use my own title company?
Typically, the bank will require you to use their title company to do the closing. They have already researched the chain of title, and are familiar with the bank regulations, however, they will pay for the title insurance which saves you approx .5% of the purchase price.
What if my lender cannot close on time?
You may be charged late fees for any extensions. This is why it is imperative that you are pre-approved.
How did the Bank arrive at the asking price and is it a good deal?
The Bank will consult with their real estate agent and set the price at full market value. The list price has nothing to do with the price the bank will accept. We will research prior mortgages on the property so that you can estimate the minimum the bank might be willing to accept.
If there are multiple offers, how can our offer stand out?
Having a larger deposit, waiving the financing contingency and showing proof of funds will get the Bank to want to work with you, even if your offer is less.
Choose the right experience real estate agent
Make sure that the agent you choose to work with is
- experienced in working with banks
- represents you as a single agent
- knows how to structure deals to make sure you are protected
- has purchased foreclosures themselves
What if the property needs work?
The Bank WILL NOT make any repairs. They sell the property AS-IS. For this reason you have a review period to make sure the property is suitable. Some are perfect condition, some are terrible condition. Either way, you should do a home inspection after your offer is accepted.
Can’t I see the property before making an offer? (This pertains to investment properties when flipping homes only)
It is recommended that you make the offer first in order to see if you even have a chance of getting a good deal. If the Bank responds and states that they will not sell less than market value, then there in no point seeing it. You will save countless hours of driving around looking at properties that you do not have a chance of getting for a bargain.
By making the offer first, you see if it is worth even seeing. If the Bank accepts your low offer, then you know that it is worth seeing, and you still have time to cancel for any reason if you feel it needs to much work or is not suitable (Inspection Period).
What if I don’t like the property?
You typically have 7 days to review the property, perform any inspections necessary and decide if you like the property. Your deposit is fully refundable within the review period.
How much will the bank take?
Typically the bank looks for a price that is within 5% of the asking price. If the bank is asking $350,000, and you offer $280,000, it is almost certain that the bank will reject your offer or give you a counter close to list price. The rule of thumb is that if the bank would accept $280,000, then they would ask close to $280,000. If they don’t get their price, then they will lower it every few weeks until they get close to list price.