Buying a foreclosed home is a little different from buying a typical resale.
The home comes as is, and it's up to the buyer to pay for repairs.
On the upside, most bank-owned homes are vacant, which can speed up the process of moving in.
"Buying a foreclosure is definitely a bit of a grind. It's not easy," says Robert Jenson, owner and founder of the Jenson Group at RE/MAX Central in Las Vegas. "You're getting fantastic pricing, but sometimes it takes going through a lot of houses and writing a lot of offers to get the home you want."
In Jenson's stomping grounds of Las Vegas and surrounding Clark County, the housing bust hit hard, and upward of 80 percent of homes sold are "distressed properties" -- foreclosures and short sales. (A short sale happens when the lender agrees to let the owner sell the house for less than the amount owed because the owner can't afford the monthly payments.)
Nationwide, about one-third of sales in May were of distressed properties. A big chunk of those sales went to first-time buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. "First-time buyers are concentrated in the lower price ranges, which include most of the distressed sales," Yun says.
Before you begin the house hunt
The first two steps in buying a foreclosure should happen almost simultaneously: Find a real estate broker who works directly with banks that own foreclosed homes and get a preapproval from a lender.
5 steps to buying a distressed property
- Get preapproved for a mortgage.
- Find an agent specializing in foreclosures.
- Know how long it takes to sell a home in your price bracket.
- Study the sale prices of comparable homes in your area.
- Remember the sale is for the home as is.
Elaine Zimmerman, a Memphis real estate investor and author, recommends that shoppers first visit the Web site she owns, ForeclosuresUS.com, or any site with a database of foreclosed homes. You also could look at a local real estate Web site that lets you filter the results to see only foreclosures. You might find the acronym REO, which means "real estate owned" (owned by a bank, that is). This signifies that a home has been through foreclosure and the lender is selling it.
The goal of combing through foreclosure listings is not to find a house; it's to find an agent. Banks usually hire one or a few real estate brokers to handle their REO properties in a market. In a lot of cases, the buyer works directly with the bank's broker instead of using a buyer's agent. That way, the commission doesn't have to be split between two brokers.
"A lot of these Realtors have a long-term relationship with these banks, and they know of listings that haven't even come on the list yet," Zimmerman says. "Call them about the listings that you're interested in, but also ask them about listings that may be coming up because sometimes it may take a day or two or even a week before a listing actually comes onto the database."
Such a request might not always pan out. In places such as Las Vegas, where thousands of foreclosed properties are for sale, you might not get much one-on-one attention from overloaded agents. To prove that you're serious about buying, says Jenson, "right before or after you meet with the agent, meet with the lender."
Unless you plan to pay cash, you'll need a recent preapproval letter from a lender. The letter will describe how much money you can borrow, based upon the lender's assessment of your credit score and income.
