Foreclosures - Build Your Team

The Denninger Report  - by Gini Denninger

As an agent, I occasionally have buyers who say they want to buy a bank foreclosure, thinking it will be cheaper, since there are so many! But as in all things, there is more than meets the eye with foreclosures. Actually, in Rochester, there is not a lot to choose from as our foreclosure market is relatively small compared to other parts of the country. A search of the local multiple listing service of REO, or bank owned, HUD or government owned listings over three counties yielded a mere 64 properties ranging from $499,000 for a 54 multi-use unit to $20,000 for a two family. There was exactly 1 HUD offering! Some were beautiful homes in pricey suburbs, others were regular family homes or investment properties in either move-in or rehab condition. Are they really bargains? That is up to potential buyers to determine, but how to do that?

In other parts of the country, corporate investors armed with cash and the ability to move quickly, buy up large numbers of homes daily. The average buyer has to compete with them, at a disadvantage. The investors looking to buy very cheaply and often have buying power and large sums of cash allowing them to deal directly with the banks. They are looking for homes to hold as rentals for eventual resale when prices climb again. Rochester does not support these buyers since foreclosures here are relatively rare and are generally offered for sale with little discount. Lenders know our market does not have a glut of homes with depressed prices, and as a result, chose to list their foreclosures with agents, in order to maximize their return.

While tax auctions can offer relative bargains, this avenue is best left to seasoned investors who can afford to take large financial losses should a property prove to be in far worse condition than initially estimated - potentially turning “a steal” into a money-pit. Novice investors or home buyers should not be comfortable with the large margins of risk involved here. When sold in a tax auction, all debt/liens on the house are usually discharged (not always so in bank auctions). Due diligence is crucial before bidding, not after! Working with an agent to identify foreclosures is a better choice for the average home buyer or novice investor. Buying listed foreclosure properties offers buyers opportunity to do their due diligence for repairs and title issues.

To be prepared, buyers should assemble a team as follows: a savvy Realtor familiar with the process; a lender who has pre-approved their mortgage amount; a reliable contractor available to price out repairs if the buyer does not know how; an attorney who must be familiar with pitfalls in foreclosure sales (hint: ask your agent for names); and last, a quality home inspector should be included on the team. Smart buyers work with experts to avoid being stung buying homes that prove to be financial disasters. This is not a time to be penny wise and pound foolish!

Read Part 2 >>

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