You can save thousands of dollars by asking simple questions that will give you important leverage in negotiating home price. Potential for appreciation and rental income in the neighborhood give you more clues in determining your price offer.
Why is foreclosure home for sale?
Find out the reasons why the property is offered for sale. This is important in making a sound assessment in considering the price. How can you get more information?
- Ask the owner (the best source).
- Ask neighbors.
- Ask the lending institution.
- Check public records.
- Consult with real estate agents.
Many homeowners cannot afford to maintain their properties due to financial difficulties and other problems. The repairs due to negligence may be costly. The missed mortgage installment payments need to be paid. Their owners may prefer to sell their properties instead of going bankrupt. These fixerupper foreclosure properties offer great advantages if you are willing to repair them.
Foreclosure home inspection contingency gives you another important leverage for further reductions in foreclosure home price.
What price is right for a foreclosure home?
- Always, always, always check prices in the neighborhood. The most recent six-month period is a standard in the real estate business.
- Do not pay more than the median price paid in the last six months. Ideally, stay at least 20 percent below the median price.
- Buy the lowest-priced home in a “good” neighborhood. Investing in a good home in a bad neighborhood may be a big waste.
- Low-cost fixer upper foreclosure homes do not necessarily mean higher profit potential. The higher the value, the higher the profit.
Find clues to negotiate with the seller, bank.lender in most cases. Some facts may strengthen your position. It is a good idea to list your questions along with your strong and weak points before you negotiate with the seller. Here are some examples:
Days on the market: How long has the property been in the market? Some real estate reports show this as DOM (days on the market). Caution: Some foreclosure properties are offered for sale, and then withdrawn from the market. When they are offered for sale again, it starts from day one again. So ask if it is the first listing.
Offers received: How many offers have been received so far? You may not necessarily get an exact figure, but it does not hurt to ask. Is the foreclosed house under contract or are there any pending offers? Was any contract canceled? Was it due a financing contingency or inspection? Financial contingency has nothing to do with the home or seller. Find out further if it was due to inspection and get specific information. Was it due to a structural problem, an environmental problem, or was it a defect that cannot be repaired?
Condition of the foreclosure property: Age of the house, roof, appliances, air-conditioning unit, water heater, etc.
Appraisals made with a Comparative Market Analysis (CMAs) based on properties sold during the last 6 months may give you a good idea of what the price should be. However, you still do not know:
- How much income that property will bring in the future; and
- How much it will appreciate overvalue.
This will tell you about current rent of comparable properties in that area. For appreciation, you may rely on trends of the last three to five years.
Buying a foreclosure home is a serious option especially now as the number of foreclosed homes reached record high level. You can also buy a house at pre foreclosure stage.
In the long run, owning a real estate property has always been a better investment as compared to owning stocks and bonds. Get or expand your share in the market now by investing in foreclosure properties!
About the Author: John Anderson worked as real estate agent, Realtor® in Florida and Virginia and certified home inspector in California. He publishes foreclosure newsletters on bank and government owned foreclosures.
