Hello Everyone,
Welcome to Friday !
We have been receiving a lot of questions about foreclosures from people who are asking us specific questions on how the foreclosure market works. In order to paint the best picture for you, we have spoken with some of our peers who are active in the foreclosure property marketplace in one function or another.
Sheriff Sale guru Marc Sherby uses a 10-point checklist to tackle all aspects of purchasing a foreclosure home. His Process is as follows:
1. Do Your Homework (research the liens, mortgages, comps, bid price, etc. before going to the auction). NEVER bid on a property without doing this first.
Joanne Cleaver of ForSaleByOwner.com says that it is important to, "Understand the micro-economics of the neighborhood. On some blocks, a foreclosure is an exception. On others, it's the rule. This affects your ability to quickly get good comps when you've fixed up the foreclosure and are trying to resell; this also affects its marketability as a rental." Additionally,
Jan Green, an Arizona Realtor, suggests to, "check the health of the Home Owners Association (HOA)" (if applicable), and to, "Check the date of the last reserve study that was done in the HOA, making sure it was within the last year if not 6 months. A lot can change in 6 months in a neighborhood. If it was 1 year, then check the number of foreclosures currently in the neighborhood and ask if more than 10 - 15% are overdue in paying, another hint." She also suggests checking to see if, "there is an Environmental Report available that will disclose information the surrounding area for airports, landfills, soil conditions or other abnormal findings that could pop up."
Alfred Miller President, Private Lending Solutions, LLC, adds that it is important to know, "how long it takes to sell a home in your price bracket", to, "study the sale prices of comparable homes in your area.", and to remember that, "the sale is for the home as is."
2. Set up your support team (real estate attorney, accountant, realtor, Title Company, contractors, insurance agent and so on). Find people you are comfortable working with. Miller concurs, and suggests that you, "Find an agent specializing in foreclosures."
3. Learn the rules for your particular area FIRST. Rules and “conditions of sale” are different for each county and for different types of sales. You can obtain a copy of these rules the Sheriff or auctioneer. Green, who works in the Hot Arizona market, states that, "The deed issued in Arizona for REO's is a "Special Warranty Deed" and not a "Warranty Deed" that is the typical deed in a regular sale. Why is this important? There is no title coverage for past problems with the title prior to the bank taking ownership of the home. And always always buy title insurance to cover the transaction against any liens on the property, no matter the type of financing used to purchase the home." Know your market !
4. Get the list of auction properties. In most cases depending on your area, you can obtain the list of properties going to auction for free. If the sheriff or auctioneer has a website many times the lists are also posted on them.
5. Line up your funds BEFOREHAND. In most cases you will not be able to obtain a traditional mortgage beforehand to pay for the property. This is one thing many people do not realize. Cleaver agrees, and suggests to, "Have lots of cash. Banks will negotiate a little, but they will mainly listen if your money talks loudly.", as well as Miller, who suggests that you get, "Get pre-approved for a mortgage."
6. Go look at the property (before you bid), and try and determine if it is occupied or unoccupied. Green suggests that you, "Knock on neighbors' doors to ask for details about the area. Neighbors can be your best source of information about a neighborhood and can provide the names of others serving on the HOA board.", and Cleave similarly says that you should, "Get neighbors on your side. They are well aware that the foreclosure next door has eroded the value of their own property. Position yourself as as hero, not as a bottom feeder."
7. Know how to bid. Bidding is a psychological game as well as numbers game.
8. Have a plan. What type of property are you looking for and where? Is the area up and coming or in decline? Are you buying as your own personal residence, as a rental, or to rehab and flip? If it’s a flip, what type of buyer will you be looking for? How much money and time can you commit to this project? Know these answers ahead of time because as the old saying goes “those who fail to plan, plan to fail.”
9. “Sit on your hands.” Begin by attending several sales and just watch what goes on. Most sales happen very quickly, usually in just a matter of minutes, so you’ll need to pay close attention. See who the players are and take lots of notes.
10. Get Educated. Many of the people you will be bidding against are auction pros and you’ll need to become one yourself. Reading books, attending training seminars, joining local real estate investing groups, or finding a mentor are just some of the ways you can educate yourself. Additionally, you can check out,
"Will It Work In My Town" for some good suggestions, as well.
Green has some additional tips that will be of huge help:
1. Always change the locks immediately upon purchase. REO homes are oftentimes on master keys for other homes in your area. If a home will be vacant for some time, get a security system as the home has a history of being vacant. If it has a pool, make sure it's maintained weekly. Check any other systems around the house to make sure they are being maintained. This way you'll maintain your equipment and have activity at the home.
2. Purchase a home warranty from a company that will cover pre-existing conditions ("hidden defects") for foreclosures.
3. Obtain a very thorough home inspection by a licensed contractor (verify the inspector is licensed, bonded and insured - Lots of home inspectors are not renewing their state licenses in this economy).
4. Check under every sink and water source for past water leaks. If there were leaks and you're still interested in purchasing the home, get a MOLD inspection.
Do you have any additional tips that will help our readers? Please feel free to comment here and let us know.
Have a Great Weekend, and Happy Rent-to-Owning !
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