Steve Dexter, a foreclosure expert and author of the forthcoming book Buy and Hold Forever-Building
Real Estate Wealth Far Into the 21st Century.
Still, the purchase of foreclosed property—an often complex and involved process—presents would-be
buyers with plenty of opportunities to make costly mistakes. In an effort to help consumers avoid such
pitfalls, U.S. News spoke with a handful of experts to create a list of six common blunders that individuals
make when attempting to buy foreclosed properties.
1. Flying solo. While enterprising do-it-yourselfers can certainly get away with going through the
traditional home buying process without an agent, foreclosed real estate is another matter. Such complex
transactions require the expertise of not just any real estate agent but one with a background in buying
and selling foreclosed homes. "In today's uncertain times it's important to be working with someone who
has been through market cycles before," says Patrick McGilvray, president of TheHomeBuyingCenter.
com, which links homeowners and owners of foreclosure real estate with potential house buyers. So
unless you are truly a real estate expert, do some research and find an agent with foreclosure experience
in your market.
2. Being unfamiliar with the law. It's important to remember that real estate agents aren't lawyers, and
foreclosure laws can change significantly from state to state. "A lot of people don't realize [that]
foreclosures are heavily regulated and every state has its own set of laws," says Alexis McGee, the
president of Foreclosures.com. "If you don't have the language proper in your contract, or if you have
even the font size wrong, it's criminal and civil damages-don't count on every Realtor knowing this." As
such, McGee advises against relying on a real estate agent for legal advice. Instead, consumers should
review the foreclosure laws in their state and then get qualified legal advice from a local real estate
3. Thinking short term. Since many foreclosed homes may decline further in value in the coming
months, it's important that buyers approach the transaction from a long-term perspective." If you are not
looking at a piece of foreclosed property from a 10-year time horizon-as an investor or as an owner
occupant-then you will likely suffer," McGilvray says. So if you are just trying to cash in on a quick flip,
don't buy a foreclosure. Only investors with the resources and patience for a long-term real estate
investment and homeowners who can afford a fully amortized fixed-rate mortgage should consider buying
foreclosed property, McGilvray says.
4. Seeing only the sticker. While the price you negotiate for a foreclosed home may be significantly
less than its value just a few years back, many such homes may require substantial repairs. McGilvray
says that anyone buying a foreclosed property should make sure to set aside an additional 10 percent of
its price tag for repairs. "Make sure you have 10 percent, especially if the home is a few years old," he
says. "It is amazing how quickly houses can deteriorate." Prospective buyers should keep these
additional repair costs in mind when they are negotiating the home's price.
5. Searching too broadly. With so much inventory coming onto the market these days, it's easy for
buyers to become overwhelmed. To that end, Dexter recommends that anyone in the market for a
foreclosure target a specific neighborhood and contact an agent with experience there. Make sure to
specify the type of property you are looking for in order to avoid being inundated with listings. Tell the
agent, "I want all these kinds of houses in this neighborhood that are bank listings and I want to know
about them all as they come on the market," Dexter says. The agent will then be able to shoot you all the
listings that meet your requirements as they become available. "If the buyer is patient enough and they
get plugged in to the flow of new bank listings coming in, they can pick up some awfully good deals."
6. Taking no prisoners. While buyers can certainly get good deals on foreclosed homes, it's a mistake
to assume that banks will accept any and all offers. (Unless, of course, the listing specifically says so.)
Banks aren't set up to sell houses, so they typically outsource their foreclosed properties to real estate
agents, McGee says. In such cases, agents can receive listings in bulk, perhaps 50 at a time. While
these agents want to get the properties sold off quickly, they also want to get a good price for the seller
so that the bank will give them additional business in the future. "Saving face is important for them,"
McGee says. "A lot of people just assume that because this property is bank-owned they will just take
half off. Well, that's just not true." As such, insultingly low offers have the potential to tank the negotiations
over foreclosed homes, McGee says. So make sure you present your wholesale offer case well both in
writing and verbally with the listing agent.
|Buying Foreclosed or