Best of Luck,
I've been helping First Time Buyers for 23 years as a mortgage professional and I will tell you what I have always told my clients here in New York: If you are a First Time Buyer, steer clear of foreclosures and short sales.
Foreclosures are someone else's headache. The home probably has not been well-maintained and you're a First Time Buyer adjusting to paying a mortgage. Do you really want to walk in the door to someone else's deferred maintenance that YOU will have to pay for? Also, if you're thinking there are deals to be had in terms of lower prices, mostly those "deals" go to professional investors who can pay cash, negotiate hard with a Lender, and close fast.
For Short Sales, my attitude of late is that First Time Buyers should steer clear. Short Sales tend to be a better deal for the homeowner than for the Buyer. You'll wait MONTHS for the homeowner's Lender to approve the short sale; maybe as long as Six or Seven Months. Meanwhile, you're stuck in a contract to buy that home. I closed a short sale recently with a Buyer who, after seven months said this at the closing table, "I don't even want this house anymore."
And he didn't even get the "deal" on price he thought he was getting! The house appraised for only slightly more than he paid for it at the short sale price. He walked into this deal thinking he was buying a home for $100,000 less than it's value. In the end that wasn't the case.
There are plenty of motivated Sellers with their homes listed on your local MLS. Go find a good Local Mortgage Banker, get prequalified, then find a great, experienced Realtor, and buy the home you want at the price you're willing to pay.
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The problem with Foreclosures is that your offer will be in limbo for possibly months and even then there is no guarantee that you will close on the house. You run the risk of investing a tremendous amount of time without a guarantee of a result.
Plus another downfall is the home will be in need of repairs that will come out of your expense budget. Many people do not realize exactly what the cost is after it is to late. Often to find hidden repairs that were overlooked or underestimated there repair cost evaluation.
If you were looking to move in a certain time frame then I do not suggest foreclosures.Not trying to discourage you, it can be done. It can also be a headache with many pitfalls that cannot be seen even with a good agent. Its always good to look at the pros and cons and see what is best for you.The choice is always yours.
I don't believe they are overrated at all. There are many terrific deals to be had out there! As long as you get the proper estimates of repairs and have a knowledgable agent. Finding a foreclosed estate marked down 40% off of market value with min. repairs would grab anyones attention. Please feel free to contact me directly if you have any questions or need help in your search.
Keller Williams Realty
Real Estate Consultant
This is a great question. I don't know that I would say that they are "overrated," but I would say that their effect on the market is definitely "overstated." At the height of the "Great Recession" nationally foreclosures accounted for a substantial chunk of available housing. This created a huge strain on the financial system as banks and mortgage companies tried to grapple with something they knew very little about. The volume of foreclosures and voluntary surrenders left the banks and mortgage companies scrambling to find a way to move these homes quickly through the process so that they could attempt to minimize the incredible financial risk that the foreclosures posed. In some cases this led to abuse of the system in several ways, the most notorious of which we today call the "robo-signing scandal."
Today, as the U.S. Financial institutions continue to improve their finances they have dramatically slowed the pace of foreclosures. We sometimes hear this referred to in the market as â€œshadow inventoryâ€ This inventory represents homes that are considered to be in the foreclosure process but not on the market as â€œREOâ€ or Real Estate Owned. This is important because the banks are moving much slower and at a more cautious pace since the economy recovering. Now there is a greater probability of the situation being resolved before the bank takes over the property through short sale, loan modification, or hopefully the home owner getting caught up. The â€œshadow inventoryâ€ will likely remain in the vocabulary for several years to come and its effect on the housing market will be debated for decades to come.
Reality is there are a lot fewer REO homes on the market and less deep discounting as banks now find themselves able to cope with the numbers of potential foreclosures they face. For property owners this means greater stability in the market place as fewer of these homes come on to the market forcing buyers to pay more due to decreased supply. For investors this means moving more rapidly and being deliberate in making offers on properties that represent good value and a high probability return as opposed to wild speculation. For the overall U.S. Economy this means a stronger housing market and better economic conditions ahead as home sales and prices increase.
Lynn911 Dallas Realtor & Consultant, Credit Repair Advisor
Multimillion Dollar Sales Producer
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Some agents convince their buyers to shift their focus to short sales instead. Most of the time, this option is no better. While the homes might be in better condition, once again, the investor who owns the loan is not going to give away a house and take a loss, if market value is substantially higher than the offer. If there is more than one mortgage, now you have two investors to convince that your below market offer is in their best interest. The buyer cannot really make any moving plans because the closing date is a moving target. You can get a short sale approval from the investor, go through the whole process, and learn just days before closing that the terms have changed or the approval has been reversed. Because they take so long, sometimes while the left hand is doing the short sale, the right hand forecloses on the property. Same as before, unless someone makes a mistake, these are not usually any bargain.
Brent Rice, Top Recommended Broker
Certified Short Sale and Foreclosure Resource (SFR)
The Rice Group, Inc.
In most cases, before the foreclosure the property may have been listed normally, then possibly as a Short Sale. Foreclosure is the last stop. Your agent can often access the former listings and get new pictures, perhaps a Sellers' Disclosure, a look at valuation then and days on market at that price.
When you buy a foreclosure, you can assume that the home has not been maintained for months, that it sat in the hot summer with no AC on, that there MAY be hidden defects, including foundation, roof, plumbing, electrical, etc. You buy the home as is, with all faults, and with no recourse to the Seller.
Also, because of the large amount of information available on line, and the large number of seasoned investors who look every day for bargains, that there are very few bargains posted on MLS. My investor clients get up early, look at the most promising new listings, do a drive by and go see any that meet their criteria, and often with their contractor in tow, and then make an offer based on this formula:
1.. Reasonable market price if the home is restored to better than average condition for the neighborhood. Minus
2. 20% of that price(profit), minus
3. Cost of repairs, minus
4. Holding costs (Insurance, Taxes, HOA Dues, Security, Utilities, cleanup and maintenance while on the market), minus
5. Selling costs AFTER the home is repaired. Equals
6 The maximum bid that works economically. Some put in a 10% fudge factor to cover latent defects or problems that arise during the repairs.
If you plan to hold and rent it, your rental price should equal about 1.2% of your total purchase and rehab costs. For a great book on the subject, read: http://www.kellerink.com/products/hold.
Doc Stephens, REALTOR