Should I buy a foreclosure home?
As I’m sure you’ve all noticed, there are a lot of foreclosure or pre-foreclosure/short-sale homes on the market in the Pensacola area right now. That’s not a good thing if you are a Seller trying to market a non-foreclosure property, because it may act to decrease the value of your home. If you’ve owned the home a while and have equity, you may still be able to sell without being upside-down on your mortgage.
On the other hand, if you are currently a Buyer in today’s market, this may help you buy a bigger or better house for your $$ or find better terms from non-foreclosure Sellers. You don’t necessarily have to buy a foreclosure home to get a good bargain. The non-distressed homes for sale are currently needing to compete with the foreclosure homes, so prices there have dropped as well.
So, should you buy a foreclosure/distressed home, or a regular, non-distressed property? Let’s compare:
Foreclosure- Sometimes a good bargain, depending on how much was owed on the property when it was taken back by the bank, and how many legal fees have been added to the Final Judgement owed to the bank (or corporate owner). Contrary to popular belief, these homes aren’t always a “bargain”. The corporate owners want to get as much out of the sale as possible, and although they may settle for 1/2 of what they are owed, you have to consider that what they are owed may be an inflated amount from a recent refinance, plus all the legal fees that were added during the foreclosure process. Also, many corporate owners will not consider completing any necessary repairs to the property prior to closing. That means that if your mortgage lender requires repairs prior to closing, you may have to come out of pocket to do them yourself (if the corporate owner allows this-they usually don’t for liability reasons), or you may have to find a different property. Often, when the prior owners of the home move out during a foreclosure, they also take anything of value with them when they leave. This means you may not get any appliances, and often fixtures such as ceiling fans and lights will need to be replaced as well. All of that adds up to out-of-pocket expense for you when you move in, or prior to closing. Of course, if you are a cash buyer or investor, you can still find some good bargains, but you have to stay on top of the foreclosure listings daily, before another investor snatches up the best deals.
Pre-foreclosure/Short Sales- If you have the patience for them, short sales can sometimes be a very good bargain. A short sale is when the Owner of the home and the Mortgage Lender agree to settle the mortgage for less than what is owed. This is a good deal for the lender, because if the home goes into foreclosure, there will be many additional legal fees and it is also a very time-consuming process. The problem is that once you make your offer on the property, it may be weeks or months before the lender approves (or disapproves) the sale. Some lenders may accept the first short sale offer they receive, even if future offers are higher. Some lenders will keep all offers on the table, not responding to any of them for long periods of time. There is no ryhme or reason to the process, and every lender is different in their policies. If the lender sells the loan after the short sale offer is presented, you then have to start negotiations all over again with the new lien holder. If there are second mortgages or other liens on the property, this could add to the difficulty of negotaitions as well. If you have the time and patience to wait though, you can end up with a potential bargain. Add to that the fact that the current owner probably will not be stripping the home of all the appliances and may be willing to perform some repairs (or allow you to do so) prior to closing, and this may be a better bet for a regular owner-occupant homebuyer. These aren’t my recommendation for investors, as you may tie up your Earnest Money for long periods of time waiting for a response, while other deals may be passing you by.
Non-distressed homes - For the Owner-occupant Buyer, this is still my recommendation. Regular home sale prices have dropped enough to where there are still many affordably priced homes available. You also get the benefit of a (usually) well-maintained home, appliances are almost always all included (or negotiable), and the Sellers are more willing to perform necessary repairs prior to closing. If you are still looking to offer below list price, you may want to search for homes that have been on the market for a few months, as these Sellers are usually more willing to negotiate, especially if the home has already been vacated. On new listings, when you offer well below list price, your offer will often be considered insulting and will be ignored or rejected. If you feel the home is overpriced, you can always have your Realtor submit neighborhood sales comps with the offer, but it may not make a difference (especially if the asking price is based on what the Sellers need to make to pay off a mortgage and pay closing costs). All in all, it doesn’t hurt to make the offer. You may want to have your agent present very low offers verbally at first- after all, we’d like to save a few trees, if possible! Then, if the Sellers are potentially interested, you can put it in writing.
Comparisons aside, you have to just find the home that’s right for you and right for your budget. If it’s a foreclosure, just check with your lender first to see if the house will qualify for the loan and if the Corporate Owner will accept the type of loan you are qualified for (many corporate owners will not look at offers with FHA financing due to the home not being FHA eligible). If it’s a short sale, I just hope you aren’t in a hurry to move. If it’s a non-distressed property, make a reasonable offer if you really like the home and don’t want to lose it to someone else, and then start picking out your curtain colors & paint chips.
If you’d like more information or assistance finding the right home, please email me at BrokerTrish@gmail.com or call 850-449-0908 to start your home search today! My services are free to Buyers as my commission is paid by the Seller or Corporate Owner. Happy Blogging!
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