5 Steps to Buying a Foreclosure Property in Los Angeles
February 3rd, 2008 Categories: For Buyers, For Sellers, Money & Mortgages
It usually goes something like this:
r.e. agent: So what are you looking for specifically?
buyer:Â Well, I’m open to area, but I want a good deal. Hey, I hear that foreclosure properties are great deals and there are tons coming on the market. Do you have any foreclosure properties?
r.e. agent: Yes, I have access to foreclosure properties. How much do you want to spend? How much were you thinking of putting down?
buyer: I was thinking of going for a 0% down loan, you know, get a great deal! (i.e. steal a property)
BBBBZZZZZTTT! Stop right there.
Let’s set the record straight here once and for all on how you can buy one of these foreclosure a.k.a. REO properties and let’s talk about just how great these deals really are. Â
Clarification and definition: A property forecloses when, after 3 missed mortgage payments and zero agreements are reached with the bank to take care of the debt, the bank takes ownership of the property from the borrower to whom it lent to for the purchase of said property. A “foreclosure” is jargon for a property that is part of a bank’s portfolio of Real Estate Owned a.k.a. an REO. Â
There is more than one way to skin a foreclosure, and we’ll blog about those another day. TODAY, we are talking about buying one you might find browsing through your local multiple listing service, or one that your agent knows about and tells you about.
5 Steps to Buying a Foreclosure a.k.a. REO Property in LAÂ
1. Get Pre-Approved. Get Pre-Approved. Get Pre-Approved.
The bank will not even GLANCE at your offer unless attached to it is your lender’s official signed statement that your credit has been a) reviewed b) and your FICO is good to great c) accompanied by your proof of funds d) verifying that your loan broker or lender has had real live human to human contact with you and you and your cash exist.
2. Be prepared with at least 20% to 30% down payment.
Not only are the days of easy no-qualifying loans out the window (as they should be), if you’re looking to buy a property from a BANK, hello! you’d better believe they will scrutinize your credit worthiness and make sure you’re prepared to throw some equity into this property.Â
There are pluses and minuses to dealing with a bank who is all about numbers and don’t care who your family is. Some would classify the above as a minus.  Point is, the bank will not get emotional (a plus) nor personal (depends) over the sale so you best look good on paper.
3. Negotiate with Knowledge and Facts.
When a bank decides the list price for their property, they have already consulted a handful of professional local real estate agents and appraisers and have every comparable sale pertinent to supporting their asking price. Generally speaking REOs/foreclosures are priced well when they hit the market.  Which means, in today’s market, when a property is priced well, one can still expect multiple offers since it’s perceived by the market as a “great deal”. If you do not believe the asking price is desirable and wish to make an offer lower than the asking price, work with your agent (you should definitely have your own representing your interests) and submit your offer with supporting evidence such as comparable sales, market activity, price trends, even-dare I suggest: sensationalized and super-exaggerated news articles about the market going to hell in a hand basket.
4. Be willing to accept a short to none inspection contingency period.
Once you hurdle getting your offer accepted at the price everyone is happy with and on the bank’s terms and special forms with additional disclosures, you probably need to get your butt in gear very quickly and complete your inspections in the (little) time agreed. The bank is generally adamant on making sure the buyer removes their contingencies asap if not immediately, so that they know the deal is as solid as can be. Of course accidents happen, but you understand the intention. Â
“But what if x,y, z is crumbling down and it will cost $200,000 to fix it?” Good thing you have your own representation! Utilize the expertise of your real estate agent to help you negotiate a fair deal with the bank at that time. Â
5. Be ready to Close that Deal!
Chances are when you’re in a contract with a bank, there is a specific closing date, as opposed to X days after X happens. When in a person-to-person deal, that closing date is sometimes somewhat sort of flexible, per agreement by both parties. When your seller is a bank and you fail to close your transaction on the date agreed due to any fault of you or your lender, the bank will almost always penalize you with their per diem costs of carrying the property until you close. So make sure you and your lender stay on top of it and get that full approval and funds transferred as quickly as possible. Your agent will oversee that all parties perform in a timely manner and light fires under the appropriate office chairs when needed.
In the world of real estate, each home and the circumstances surrounding the sale is as unique as the buyer who buys it. Can your agent help you negotiate a deal on a non-foreclosure that’s just as satisfying as one you may get with a foreclosed property? Yes! Well, WE CAN. But if you’re absolutely decided that a foreclosure is what you MUST buy, in order to feel GREAT about the purchase, then you MUST call…Merrie & Noelle for the best deals in town!
Let’s talk soon!
