Foreclosure Property FAQs
What is a Foreclosure?
Are Foreclosures a good deal?
Are they better deals than Short Sales and Private Sales?
Are Banks difficult to work with?
Is it really worth the hassle?
These are all great questions that need to be answered. So let’s take a look at these questions one by one.
What is a Foreclosure? Bay Area foreclosures are homes that have been taken back by the bank (lender) due to non-payment of a loan against the property. In California, this takes place via a process called a Trustee Sale, where the home is offered at auction, on the County Courthouse Steps. If bids are made that meet or exceed the minimum set by the Trustee, the home will be sold to the highest bidder. If not, the home will go back to the bank (trustee), who will then list the home, with a Realtor, to sell the home. These homes are referred to as REO Properties (Real Estate Owned). Foreclosures can also be initiated by a Tax Authority or Homeowner’s Association, for non-payment of Property Taxes or HOA Dues.
Are Foreclosures a good deal? YES! –Bay Area foreclosures (also known as REOs) are definitely some of the best deals on the market. In fact, many investors prefer to purchase REOs because they feel there may be an opportunity to fix-up a property and flip it for a profit. But REOs aren’t just for investors anymore. Many banks are actually fixing-up their properties before putting them on the market, to allow FHA borrowers and First-time Homebuyers to purchase them. The bottom line is that a property that is in near move-in condition will likely attract a variety of different buyers and a lot of interest. So REO properties are great for all kinds of buyers.
By the time a bank forecloses on a property, they have often been through a long period of attempting to collect payments, and many times have been through an attempt at a Short-sale. So, by the time they are ready to put the home on the market, they are ready to sell, and will price the home accordingly.
Are they better deals than Short Sales and Private Sales? In the case of a Short Sale most banks will not discuss the Listing Price with the Realtor until after they have a written offer from a buyer. As a result, making a full price offer on a Short Sale doesn’t necessarily mean they will accept the offer. It can often take 3-6 months to get an answer to your offer and then they my rejected your offer, or worse yet, they may tell you that while you were waiting, they foreclosed on the property.
Private sales can be a good way to go, but are often priced higher than equivalent REO or Short-sale Properties. Many private sellers will just test the market to see if they can get the price they want, and are not willing to accept anything lower than their List Price, for the home. Since these homes are often overpriced, it results in homes that have received several offers, but none have been accepted and they are eventually withdrawn. Factoring in these difficulties with Short-sales and some Private Sales, purchasing an REO Property looks pretty good.
Are Banks difficult to work with? Yes and No – Banks typically let their Realtor know right up front what they want and don’t want to see in an offer. The Listing Agent will then share this information with other Realtors that will be writing offers on the property. Typically they prefer to have shorter escrow periods (around 21-30 days). They also will request that all offers are “as is” offers. In other words, if you find something wrong with the property they will not fix it. Many banks will also demand that the buyer be pre-qualified by a loan officer who works for them. There are a few more idiosyncrasies, but once you accept these facts, the actual transaction moves forward quite quickly.
Is it really worth it? Absolutely! If you intend to flip a property it usually requires that you find a home in poor condition, then fix it and sell it. Many owners that lose their home to Foreclosure are not happy that they are being foreclosed upon, and may even take any improvements that they have done to the home with them, or worse yet, they may vandalize their own home, in retaliation. Buying Bay Area foreclosures in poor condition may be an opportunity to take advantage of a little sweat equity. Having sold millions of dollars of REO properties, we can personally say that we have many happy investors that are very happy with their REO purchases.