Although cash-paying real estate investors typically purchase foreclosures, don’t let this deter you; many lenders will assist you in locating the appropriate financing to purchase a foreclosed home.
- Look for comps before making a bid.
Finding the correct price to offer is a science as well as an art. Your realtor can perform a comparative market analysis (CMA) to assist you in understanding recent selling prices of comparable homes, or “comps.”
According to Soffee, he has performed a CMA over the last 180 days. He considers various aspects, including the velocity of property sales, tax assessment history, and a more in-depth review of similar homes nearby that have recently sold.
If you’re competing against cash bids, understanding this information can help you make a competitive bid. Keep in mind that your lender will want an appraisal to determine the home’s value, so keep that in mind while making your offer. If there is a price discrepancy between your request and the house’s appraised worth, you may have to make up the difference if the bank (the seller) refuses to budge.
- Make a higher bid if other foreclosures nearby are quickly selling.
There is no specific formula for calculating the bank’s bottom line, so if foreclosed houses in your region are selling rapidly, work with your agent to build a firm offer that is backed up by your preapproval letter if seeking a mortgage. However, in many cases, foreclosures are already discounted so that the bank may reject a low-ball request.
Keep in mind that the type of house and location are important considerations, and some homes may sell faster than others. As a result, in competitive markets, you may need to offer the asking price (or somewhat more if other offers are received) while keeping contingencies to a minimum.
- Be ready to purchase a foreclosed property in the ‘as-is’ clause.
When purchasing a foreclosure, the property is typically sold “as-is.” This means that the seller cannot guarantee the property’s condition, such as whether it has termites, structural difficulties, or lead paint, and is unlikely to undertake repairs.
“Since the bank owns a foreclosure, there is no one to fix any current issues,” Sklar says.
If you plan to buy a foreclosed house, do a home inspection, so you know precisely what you’re getting into. A house inspection is not, of course, required when purchasing a foreclosed home. Still, it can uncover substantial flaws that the bank is unaware of, allowing you to decide whether to proceed with your house purchase or back out if you included a home inspection contingency in your contract.
