FORECLOSURE Q & A
What is a foreclosure? Is it the same as bank-owned property, REO, or short sale?
A property that has been taken from the owner by the mortgage holder, is called a foreclosure, an REO (Real Estate Owned) or bank-owned property. The mortgage holder (bank or investor) is the seller. This is different from a short sale, where the seller still owns the home yet the bank makes the decisions...even though the same home may have been previously listed for sale as a short sale. Please CLICK HERE for a Q & A on short sales.
What are some of the hidden costs of buying a foreclosure?
More often than not, the bank will refuse to pay for costs that are usually paid for by a seller in a traditional sale. These costs can include repairs of the systems in the home, buyer's home warranty, and other fees, so the buyer would be required to come up with more money (sometimes a lot more money) to cover these items. Sometimes it's a matter of a few hundred dollars, but it can be thousands. Some of these items may be required to be paid for at the time of closing.
Can I negotiate with the bank for a lower price on a foreclosure?
It depends. The price set by the bank is often so low that the bank expects to receive, and often does receive, purchase offers from many buyers for the same property. The bank wants to obtain the "highest and best" offer, which can often result in the property selling for an amount higher than the list price. On the other hand, if the property is sitting for a while and has not sold, the bank will reduce the price. Sometimes the bank will take a lower price, and this is most common when the bank was on the verge of doing a price reduction anyway. If you are offering higher than the listed price, you'll want your Realtor to check comparable sales in the area for you, so you do not over-pay.
I already know what I can afford, so why do I need to get my financing in order before I go looking at property?
There are a few reasons to do this, other than the obvious ones (such as you'll want to make sure your payments, including principal, PMI, interest, taxes, and insurance, will fit into your budget; and that you'll want to make sure you qualify for financing in these times where banks are increasingly tighter on lending out their money). So then, why? Once you find a property that you want to make an offer on, you will be required to provide to the bank certain proof that you are pre-qualified for financing, before the bank's real estate agent will even present your offer to the bank, which means that you will lose precious time if you haven't gotten it prepared in advance. Also, if you are using government financing like an FHA or VA loan, the property itself must qualify for that type of financing, so you'll want to be sure you are not wasting time looking at the wrong properties...you'll want to consider only properties that you can actually buy. Call me and I will guide you on how to get pre-qualified for financing.
Financing doesn't apply to me -- I'm going to pay cash.
That's excellent because doing an all-cash transaction will give you an advantage over buyers who need to obtain financing. When you put in your offer to purchase, the seller will require you show proof of funds.
But wait, I have more questions...!
Contact me and I'll answer all of them!
(This page c. 2009 by Felicia Grady and may not be reproduced without permission)