Foreclosures, short sales, and REO (bank owned) real estate are all generally lumped in the same category by the public, however they are very different from each other. Most Realtors do not have the experience or desire to put in the extra work involved in closing these sales. There is much extra effort put into these sales compared to a "normal" transaction and many offers do not result in sales. Since Realtors only get paid if there is a successful sale, many Realtors avoid these types of transactions. As you can see from the answers below, there are Realtors that can navigate these transactions.
In my opinion, the most essential element in these transactions is a Buyer with realistic expectations. A Realtor wants to know that a Buyer will follow through and that his/her efforts will be rewarded.
1. Do you have extra cash that you do not need for living expenses? These properties usually need some work.
2. These are financial decisions, not emotional.
3. Are you patient? These transactions take longer.
4. Are you prepared for rejection or failure? Sometimes you may not know why an offer has been rejected. Also, your offer may not be accepted due to issues that you have no control over. Somewhere in the transaction you may be dealing with an incompetent or over worked individual or an inefficient and cumbersome process. Some decisions defy common sense.
5. Do you have the confidence to submit multiple offers? If you wait 4-6 months and then you offer is not accepted, you have wasted all that time.
6. Are you prepared to deal with a Seller that may not be forthright in their disclosures? Many, many surprises can pop up the week of closing.
7. Are you ready to play "hardball" with lenders/lien-holders?
Earlier answers said that these transactions are not for the faint-of-heart and can be profitable. Both are right.
You've got some very good answers! I wasn't going to write, but thought to do so.
Foreclosures are NOT for the faint of heart. The TV Pitches of "buying a foreclosed home for pennies on the dollar" are the new "Snake Oil" Salesmen of the day.
They are ONLY trying to sell their "How To" method.
If a foreclosured property reached the RMLS, it's usually in really bad shape. Most deals, and Dirk Knudsen is absolutely correct, are made on the courthouse steps.
What he means is this: Foreclosure is a LEGAL process. The borrower has a "Right to Redemption" -- and can, literally, come into court on the day of the foreclosure hearing, pay the money owed, and get the property.
Of course, when most owners walk, they never turn back and excersize their "Right to Redeem" their property. But, because of this right, the foreclosures are on-hold until the final moment when the judge signs off. That's the courthouse steps. And there are companies, and businesses who have been doing this type of purchase for years, and years. They have their pipeline, and are tapped into the lenders, banks,and the single purchaser is very few and far between.
Most lenders will not loan on a foreclosure because there are in such bad condition. By the time the owners vacated the premises, it could have gone through the winter and had pipes break, just as one example of conditional concerns.
The purchaser of a foreclosed property is also responsible for any BACK TAXES . . . and they can be steep.
If you have the cash to purchase, pay back taxes, assume the liability of damages, etc.
That's why most agents don't bother.
However, there are some "bank owned" REO (real estate owned) property currently on the market that's pretty good.
If you think you can become an investor in foreclosures, you'll have to be very cash ready.
There is a loan 203(k) which is an FHA loan which allows for monies to be borrowed along WITH the mortgage for the repairs. Say the property needs $50,000 in repairs (new roof, flooring, siding), and the home is listed at $150,000 -- you could, theorectically, borrow $200,000.
Then you are responsible for repairs. Again,"fixing up" a home is not for the faint of heart either. I am a licensed General Contractor (inactive) with the State of Oregon. It's a lot of work to re-hab . . . easier said then done!
If you want to 'invest' in property, there are so many options you can afford yourself, and not have the bother, headache, and can do investing the right way. Please feel free to contact me if you are thinking of investing in real estate, or would like to discuss other plans you may have. I offer a free one-hour consultation.
Carla Muss-Jacobs, ABR, CEBA, e-Pro, Realtor(r)
EBA Portland, LLC
14845 SW Murray Scholls Dr., #110-518
Beaverton, OR 97007
YOUR Exclusive Buyers Agent -- Assisting Buyers in the Metro Portland area since 1999
Call for more information: 503-975-6853
Currently our market has only a small percentage of truly bank owned properties. There are alot of variables that come into play when you the buyer is looking at foreclosures vs short sales vs motivated vs priced right homes. The goal is to buy the RIGHT home with clear title; free of all leins and embumbrances.
As your agent I would guide you to what is important in a home to YOU. If the one we find is a REO (bank owned) great we negotiate with the bank, if it is a short sale, same thing we negotiate with the bank. If it is a motivated seller or a home priced right we negotiate with sellers.
The point is to look for a home or an investment propety that meets you needs and goals, who owns it should not dictate whether you have an interest or not. I have experience in bank owned, short sales, and working well with buyers and sellers to acheive results.
Give me a call and we can discuss your needs.
If you check into a 203k loan you will find it is very useful for homes that are not move in ready. Great way to buy a fixer, and down pmt is as little as an FHA loan. You must live in the home as the loan is not for investors. Forget Short Sales, most are riddled with headaches. If you can wait for the right property, bank owned is the way to go. No emotion (although some make very poor decisions that seem emotional!).
If you have more questions give a shout.
Blu dot Realty, LLcc
If a Realtor is steering you away from foreclosures... I believe they are doing you a HUGE dis service. Who cares if it takes longer when you get your home for a $teal! Search these homes free at http://www.PortlandHomeAuction.com ~Buy Smart~
lets be clear. A Foreclosure is a home that is in foreclosure by my definition and those are sold on the court house steps and or deeded back to the bank usually. They are hard to buy during this time. In this case you may never see the home, are taking a chance the condition it is in, will likely have to evict the owners, and have a mess to clean up. The title you get is not always free of liens and encumbrances. You may have pending IRS and property tax and mechanics liens. You need to pay all cash at the courthouse steps and there are no loans allowed. ready for that??
Also the Realtor does not get a fee unless you pay it.... so it is really up to you on bringing in a good agent who can help alot. Now if you are talking about a "Bank Owned" or also known as a REO or Portfolio property than YES by all means we all work those and they are good values. Almost all of those get listed on the MLS.
Short sales are another matter but make a great value too. If I had CASH Sharon, a good agent, a good attorney, and a good Title manager I would go to the Courthouse steps and CLEAN UP!! The deals are crazy... but these as I say are not for the faint of heart.
Any questions? I know a good agent...and attorney and title company..and handyman....hmmmm.... I need a buyer with cash!! Let me know ...
Regards and great question.
Re/Max Hall of Fame
If you'd like to discuss in greater depth, please phone or write at your convenience. Here's a link to comments from several clients to help you decide if you'd like to talk further. Thanks very much.
Yes! It is definitely worth going for these homes, if it is foreclosed and bank owned it is pretty straight forward. If it is a short sale, it is a pain! It takes 2-6 months to close and you don't know if you have the best offer in as most sellers are required to accept all offers and submit them to the bank, then the bank decides when and if any of the offers are accepted and there is usually NO communication along the way. I say go for those bank owned homes, you can get a great deal, still have an inspection contingency because you are buying as-is but can still pull out after an inspection if there is too much "IS" in the "AS". :) I have successfully closed both short sale and bank owned but it is two very different paths! Good luck.
If this is an investment as above it is work with the right home in a good area it can be very profitable. watch your taxes if you plan on selling it. get accountant to advise you as here in ny you needlive in and own for two years to qualify for capital gains tax relief.
As a realtor here I would be more than happy to help a client if this is a home they were intrested in. I would advise of the possible pitfall but would not advise that it was a bad idea . with so much REO on the market now how could a good agent not assist in clearing up some of this inventory.