Buying foreclosure a.k.a. bank-owned (REO) can be rewarding. However, unless you're a 'pro' or investor, here are some of the things that you should be aware of:
1. Get your financing line up. Ocassionally sellers' agents would ask buyers to have pre-approval from a direct lender, i.e. from big banks, and not through a 'broker.' This is because of tightening of financing. Though, you may come prepare with your pre-approval letter, a lot of times the seller wanted you to get a second opinion from their 'preferred lender' - just to make sure you won't have problem to close. As a bonus, the other lender occasionally throws in incentives (i.e. closing cost assistance) - to rope and keep you in.
2. Be patient. It depends which bank you're dealing with, sometime takes less than 48 hours, sometime it takes longer than that. Depends on bank's motivation level. The more motivated they're to sell, the faster the response.
3. As-is condition. You're buying the property as-is, kinda WSWYG (what you see is what you get). If you find no appliances in the kitchen - yes, I see a few of those! - that means you'll have to be ready buying appliances for your kitchen.The price you pay takes into account the fact that there's no kitchen. Although, from time to time we see 'overpriced' bank-owned properties listings. If you see a property that has 'mold' - which is not unusual - usually the listing agent disclose it in the remarks, you gotta to take it as-it-is. Bottom line: the bank doesn't want to do 'any' repairs.
4. Home inspection. You can do home inspection for 'informational purposes only.' If you see something wrong with the property, don't expect that they'd fix it. Again forget about banks doing some repairs.
5. Competition. From working the trenches, people who are buying foreclosures are either a) to live in it, or b) to rent it out. So, they're either first-time buyers (most of the times) or investors. A few property out there, esp. those that badly need rehab, only want to deal with 'cash' buyers. So first time buyer is out.
6. Bank sales agreement overwrites 'our' regional sales contract. When a bank approves the sale, the bank will send their version of the sales contract that 'overwrites' your original offer. Terms and conditions negotiated prior to their approval. When bank sends your agent back the contract, that means - the contract is already 'ratified.'
7. Unlike a conventional sale, where agents from both sides can smooth up the deal, in a foreclosure situation, there's no relationships! The "bank" decides whether they want to take your offer or somebody else's. No negotiation. It's all in the numbers. So save some negotiation time of going back and forth - since some banks are slow in making 'that' decision - it's better that you and your agent works out a deal that represents your best-and-highest offer.
8. Don't fall in love with the property. Use your common sense. Because it may take three, four, or five different contracts before you finally get there. Don't get discouraged if bank rejected your offer the very first time.
You will eventually get it. You just have to be very very patient.
Oh one more thing, please allow yourself time. And focus. I have been in situations where clients give up buying because their offers got 'outbid' a few times. And they got broken-heart. Got discouraged with the whole thing. Because that means, we have to go back to square one. And start all over again..
The take home message: via an email from a listing agent.
