As buyer interested in buying a foreclosed property, it is imperative that you have an understanding of the process. Although the process has many similarities to buying a privately owned home, there are several important factors to remember when buying a foreclosed home.
The basic steps in buying a foreclosure are as follows:
Step #1 - Proof of Funds and/or Pre-Approval Letter
Prior to our office showing you one of our foreclosed homes, you will be asked to provide either proof of funds if paying cash and/or a pre-approval letter if you require financing. Bear in mind, that some of our clients will require you to get a pre-approval letter from their mortgage division prior to considering your offer. Please do not be insulted or offended when asked for this prior to viewing the home. This is a requirement of our client.
Step #2 – Viewing the Property
Please be prepared for viewing the foreclosed home. Since many of the homes do not have the utilities on, bringing a flashlight is always helpful. Having a digital camera to photograph the interior will also be helpful when trying to recall particular sections of the home. A tablet is also nice for taking notes on the property.
Step #3 – Making an Offer
First and foremost, it is important to understand that our client’s foreclosed homes are priced at market value based upon the condition they are in. Why is this point important? Simply stated, our client’s will not take pennies on the dollar for their foreclosed homes. Despite what you may have read, or what someone has told you, very rarely does a foreclosed home sell for pennies on the dollar. Our average list price sale price ratio is 95%.
Also, please consider the type of financing you are going to use to acquire a foreclosed home. Many of the homes do not have the utilities on, and have material defects that would preclude a buyer from using certain loan products. Consult your agent to see what loan products will and will not work for the specific property that you are interested in.
When buying a foreclosed home, you will need to list the new owners on the sales agreement. Please make sure you have the new owners listed correctly. Removing or adding names to a sales agreement is a very tedious and time consuming task for everyone involved. In fact, some of our clients will not permit changes once the contract is signed.
You will be required to sign off on an owner occupant/investor certification. Please be sure to answer this form truthfully. Fraudulently certifying this form has legal and criminal consequences.
Frequently Asked Questions regarding the offer process:
I put that I require an answer from the client in 2 days, why haven’t they responded to my offer? You must understand that you are dealing with a corporate client. At times offers may need to be elevated to upper management or to the PMI Company for review and consideration. Do not place response dates in your offer, they will not be observed or honored.
My offer was the first offer in, why isn’t the client negotiating with me first? In a multiple offer scenario, our clients will ask that we go back to all parties to ask them for their highest and best offers. This is not a first come first negotiate situation.
My agent keeps calling ERA Meridian Real Estate Group and they don’t have an answer on my offer yet, why?
It can take 7 to 10 business days to get a response from our clients and sometimes longer. Having your agent calling our office repeatedly will not get you an answer any quicker.
My offer was rejected without a counter offer, why? If our client chooses to just reject your offer without a counter-offer, they are politely telling you that you must substantially increase your offer for it to be given consideration.
I called ERA Meridian Real Estate Group to find out what the other offers are and they wouldn’t tell me, why? Disclosing the terms and conditions of another offer is unethical at best. This information is proprietary and will not be released.
How do I know there really are other offers?Maybe the Realtor is just trying to get more money out of
me. Rest assured that if you are notified of the existence of other competing offers on a property, they are bonafide offers. It is your decision, when notified of multiple offers, on whether or not to improve your offer, reduce your offer or leave it in its present state. If you choose not to improve your offer, do not call our offices after being notified that you lost the property to another bidder asking to increase your bid. It will not be considered. You
were given the opportunity to change your bid.
I called ERA Meridian Real Estate Group and they advised me that I am not supposed to be calling them, why? Proper protocol, when you the buyer are represented by an agent other than ERA Meridian Real Estate Group, is to communicate with our office via your buyer agent. Information that you may disclose in any direct conversations with ERA Meridian Real Estate Group is subject to our disclosure to our client. This is known as fiduciary duty.
I saw in the newspaper, the courthouse or other public record that the house I am interested in was sold at a sheriff sale for a small amount of money. Example, our client buys the house for $1,894.00 at a sheriff sale, they then market the property for $85,000.00. How can they do that?
You must remember that the property you are bidding on is a bank
foreclosure. Just because the bank bought the property for
$1,894.00, doesn’t mean that’s all they have “into the property”.
The national average cost to foreclose on a home is in
excess of $20,000. Add that to the original mortgage that wasn’t paid, the cost to clean out the property, the cost to market the property and the plethora of other costs, you can easily see that the bank has much more into the home than just the price they paid at the sheriff sale.
I’ve taken a class or have heard on TV or the radio that banks will take pennies on the dollar for foreclosed homes. So I feel when I offer them 30 percent of the listed price they should take it. Why won’t they? Again, you must remember just how much the bank is owed on the property, the costs of foreclosing and the other costs involved with liquidating a bank owned property. Sure, a bank is motivated to sell the property, but that doesn’t mean they aren’t just like anyone else….they want to get the market value of the property in its present condition.
I have prepared a letter with my offer detailing all of the problems and defects with the property, why won’t you submit it with my offer? Although we appreciate the time you spent preparing your letter, our client is already aware of the condition of the property. In preparing our valuation on the property, we take between 50 and 100 photos of the property. These photos are then forwarded to our client to show the condition of the property. Bear in mind that
the price the client is asking for the property has already taken into account the condition.
Why do I need to provide proof that I can afford to buy this property?
- I know I have the money. It is standard operating procedure for our clients to require either a proof of funds or pre-approval letter prior to reviewing an offer. With out the proper proof that one can consummate the transaction, the offer will not be considered.
Why can’t I go into the property before closing and start fixing it up? Be advised, our clients do not allow pre-settlement repairs on their properties. Our office conducts regular random checks of our properties once they go under contract. If you are found inside the property without your agent, occupying the property or working on the property, you run the risk of being prosecuted for criminal trespass. Just because you are buying the property doesn’t mean you own the property.
Step #4 - Offer Accepted – Moving Towards Closing
Now that you have an accepted offer on one of our foreclosed homes, here are some important points to remember.
Why are the milestone dates of the contract important? Please remember when buying a foreclosed home, the milestone dates are critical. There will be a per diem penalty built into the contract that states if you do not close by the agreed upon close date, you will be assessed a daily penalty until you are able to close.
Who turns on the utilities for inspections? If you elect to have inspections, you the buyer, will need to activate the necessary utilities in your name for the inspections.
What if the property needs lender required repairs? The seller will not permit you the buyer to complete any repairs on the property prior to closing.
Why can’t I have the keys to the property at closing? Many of our clients will not allow the keys to be released until they have proof of funding. What this means, is basically they want to be sure they have the proceeds from the transaction prior to allowing the keys to be released to you.
Should you have any additional or specific questions, feel free to contact ERA Meridian Real Estate Group at 724-335-5681. If you are currently represented by an agent other than an ERA Meridian Real Estate Group agent, then please contact your agent so they may properly address your questions and/or concerns.