First, let's define what we mean by 'foreclosure' and REO properties. The term 'foreclosure' is used in a lot of different situations, but here we're referring to when the bank as actually taken possession of the property, become the owner, and has listed it for sale. "REO" stands for Real Estate Owned Property; a term that banks use once they have foreclosed and become the owners.
Okay, on we go!
- Get qualified for a loan before you begin your search. This is PRIMARY. And I mean fully qualified. REO's generally want a fast sale and they expect to have a good prequal letter or proof of funds (if you're paying cash). At least in the Hickory, NC area (and I'd presume elsewhere as well), you don't have a financing contingency on foreclosure properties.
- Understand that REO's will usually need work. Sometimes lot's of work! I say this because I've shown buyers that said that they don't mind some TLC, but then balk at the smallest problems. If you're not handy, or don't have a plan to fix up the home, buying a foreclosure may not be the best bet for you.
- Foreclosures are rarely in 'show' condition. Similar to above, even if the home needs very little actual repairs, it may be completely trashed. You have to be able to look past the mess and see the possibilities of the home.
- Foreclosures are truly sold "As Is." Most homes are sold as-is in NC, but in a standard contract, you have a 'condition contingency.' Like the loan contingency, in the Hickory, NC area at least, many REO's have removed ALL contingencies from the offer. In a nutshell, that means that finding damage during an inspection you may have missed will not be a contract contingency to help you get out of the contract and retrieve your earnest money.
- Be prepared for a Bid War. Especially if the home is already priced right for the condition. There will be a lot of people interested in the property, especially investors, and they will bid higher if it meets their numbers.
- Don't wait to make an offer. Many people that are interested in a foreclosed home as their primary residence will often wait on making an offer on it. Sometimes, it's because of the condition, but in a lot of cases, it's because they want to wait to see "how low it'll go." If it hits the market over-priced, that may work, to a point, but usually what happens, is that they miss the opportunity to make a bid at all because someone else didn't wait. See #5.
- Don't get discouraged. You may miss out on a few foreclosures, even if you do get your offer in. That's just part of dealing with foreclosures. Still, if you think a particular house was the "IT" house for you, you may still have a shot. This is still a tough market, especially concerning financing. Many times with foreclosures, something happens in the deal that prevents it from closing and it goes back on the market. So keep checking until it says "SOLD."
photo courtesy of Andrew Bains flickr photostream