Creative buyers do end run around foreclosure auctions
Consider approaching investors immediately following a foreclosure purchase
Some buyers have discovered the next best thing - purchasing directly from the investors who bought the property at auction before it goes on the open market.
The vast majority of properties auctioned on the courthouse steps do not receive bids, and return to the lender. This is because the lender will not accept a bid lower than what it is owed or at least not at a big enough discount to make it a good deal for investors.
The key difference between lenders and investors in foreclosure auctions is time. Homes sent back to the bank can take months to reappear as a bank-owned property. For investors who buy at foreclosure auctions, the quicker they make the sale, the more profit they make. For the investors, time is literally money.
Understanding this difference can help you land an auction property at a discount.
That's how a client of real estate agent Beverly Durham in Camarillo, Calif., found her dream home.
"We had our traditional ways of doing things," said Durham, an agent for more than 20 years who had never negotiated a sale in this manner. "In the last year or two, we've had so many foreclosures. We've never had banks repossess so many homes."
Durham's client looked for properties in the foreclosure notices of her local newspaper. When she found one she was interested in, she would drive by to check it out. It is usually impossible to get inside foreclosed homes and sometimes the homeowner is still in the property.
That's another advantage of buying the property from an investor, who must provide you with a clean title and an empty house. When you buy at auction, there are no such guarantees.
The pros usually subscribe to an online foreclosure website. Most are about $50 a month, and they beat trying to read the microprint in newspaper legal notices.
Durham's client would attend the auction and when the property she wanted was sold to an investor, she would ask for the investor's contact information. The agent called the investor to determine what they wanted for the property. She then worked with the client and negotiated with the investor to purchase the home.
The investor purchased the property at auction for $120,000 and sold it to Durham's client for $190,000, which was about 15 percent below the current market. The investor, who had to also pay back taxes and homeowner association dues, was able to quickly sell the home, which allowed him to get his money working for him faster by purchasing another auction property. The buyer was able to afford the home because of the discount.
"[Auction] investors buy these properties to turn around and sell them," said Durham. "A lot of times they're willing to sell before they put them on the market, especially if they don't have to fix it up."
And that can mean a bargain for the buyer. In the worst housing crisis since the Great Depression, those who think beyond the norm can come out on top.