Should You Go Through a Real Estate Agent to Buy Foreclosed Property?Purchasing foreclosed - also known as REO or bank owned - property seems like an opportunity that is too good to pass up for many prospective home buyers and investors. However, while it is a home purchase, it is a very different transaction on many levels. Therefore, utilizing the services of a real estate agent is highly recommended (especially for novices). A realtor with experience in negotiating these purchases can be an invaluable ally and an excellent guide through what can be a very complicated process.
As most people know, once a home owner goes through the foreclosure process, the house is taken back by the lender - typically a bank - and put back on the market by the owner. Banks currently have unprecedented inventories of REO properties, which is a drain on their bottom line. Banks are not in the property management business, so they usually want to sell these homes as quickly as possible to get them off their books.
Traditionally, REO property was sold at very attractive prices, relative to comparable homes in the areas. While this is still potentially the case with the current inventory, this is definitely a buyer beware scenario now. Home values have dropped dramatically nationwide, so increasing numbers of home owners are walking away from properties that are "underwater" (home owners owe more than the home is worth).
Banks and other lenders want and need to at least recover the amount that was lent to the original home purchaser, so pricing on these homes is less likely to be a bargain. Many of the home owners had little to no down payment when they purchased the home in the first place. Because of the glut of homes on the market now, purchasing a REO home from a bank can be a very lengthy process. The consumer should count on at least 120 days from date of first offer, but it is not uncommon for an offer to go unanswered for 6 months or longer.
Real estate brokers who specialize in dealing with banks on foreclosed properties can help. They often know the inside the bank people to contact, and understand when, where and how a purchase price can be negotiated. Real estate is still a relationship game. In addition your agent should be helping you avoid some of the pitfalls that an inexperienced home buyer makes, such as helping you research title and liens, and home inspections.
In most cases, REO properties are purchased "as is." If there are liens against the property, such as unpaid taxes, you can inherit these liens as a buyer. Make sure you real estate agent helps you uncover any legal issues that can cloud your title, if you decide to make a purchase.
Real estate agents usually advise buyers to get a home inspection, even on a new home, before buying. It is probably never more important than when buying this type of property. However, again, buyer beware - homes sold at foreclosure auctions are rarely available for inspection prior to the auction. Unlike the average home owner who has lived in the home and is aware of any problems it may have, banks are usually unaware of issues with plumbing, etc. Therefore, they are not required to disclose anything prior to a sale. This is definitely a case of "what you don't know can cost you dearly."
At the same time, lenders are even stricter than before with their requirements for home loans. If you need financing for your home purchase, it is wise to get pre-approved. In some cases, especially with REO property, lending guidelines are bit more lenient (but don't count on that). Homes with extensive damage, as is common with REO property, can be very difficult to finance outside of with the bank that owns that real estate. This can put you at a disadvantage in regards to rates and fees.
Real estate brokers with established banking relationships will often be the first to know about new bank owned properties, even before they become available on the market.
As with any property purchase, it is up to you to do your own research. However, it never hurts to have some help with someone knowledgeable about the process. You will be competing for the best properties with investors who are very savvy.
About the Author:
Stephen Daniels is an acclaimed researcher of best practices, products, and services for a variety of industries. If you need an experienced real estate agent in the South New Jersey area, he recommends www.sweethomenj.com .