FORECLOSURE: Points to consider when buying a foreclosed home

Rarely have foreclosed homes impacted the real estatemarket as they do currently. Unless you've been on another planet over the past decade, the real estate market hit an astoundingly high-ceiling 'market value' in the mid-2000's. This remarkable condition, where buyers could get mortgageswithout having to provide sufficient documentation that they could actually afford the home, contributed to the onslaught of foreclosures and short sales we have today.

Without entering a discussion as to how this could happen, people in the market for a home today have a great opportunity because of the abundance of foreclosures and reduced prices. But before embarking on the path to purchase a foreclosed home, consider the following:

1. Do your homework. Real estate websites often list foreclosed homes for sale. Trulia and Zillow are two familiar ones, but there are others. While areas like Sacramento, CA, Las Vegas, NV, Miami, and Atlanta are often cited as being hit the hardest with foreclosures, other areas have been affected as well. If your plans don't include moving to one of these regions where foreclosures are plentiful, search for foreclosures in places you plan to live. There are some in many neighborhoods in most every state.
2. Buyer beware. If you decide to pursue a foreclosure through an auction company, make certain you get a home inspection before submitting a bid. Most sales are final, and it's too late to discover the plumbing needs an overhaul, or the septic system is not working, after the fact. Even if you don't go the auction route, a home inspection is highly recommended.
3. Get an appraisal. Most home buyers need some kind of financing help, unless they are fortunate enough to have cash. Lenders require an appraisal on a home they expect to finance. Cash buyers are not hampered by such a requirement. Sometimes auction companies have had an appraisal done before the auction, so be sure to ask. They don't have to tell you what it is, but ask anyway. Having an appraisal is worth the few hundred dollars if you want validation as to what the home's value is. You can also check the tax record to see its assessed value, although these values are for tax purposes and have been at odds with current market conditions.
4. Consult a real estate agent. While websites may feature foreclosed homes for sale, real estate agents pay a fee to subscribe to a multiple listing service, providing a more comprehensive view of the market. They can quickly identify foreclosed homes in your areas of interest and help you with your research. If you find a property you would like to pursue, they can do a comparison of similar properties (CMA) to show you what properties have recently sold for. This provides an overview of what a 'reasonable' offer price might be. And the service is free, since agents are paid a commission by the seller, not the buyer in most cases.
5. Bottom line. Lenders are in the business of making money, or at least losing the least amount of investment as possible. As a result, lenders have already 'done the math' as to the price they want as their 'bottom line.' While that doesn't mean you should offer the 'list price,' it may give you some idea as to the price the lender is willing to consider. Again, a real estate agent is a valuable resource for helping you determine a 'reasonable' offer. Lenders rarely want to enter into 'negotiating' a price, which is often expected as part of the home buying process between buyers and sellers.

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