5 Tips To Help Secure A Foreclosed Property
By JD Esajian on August 3, 2018
It seems like only a short time ago, but the mortgage collapse and foreclosure boom are already a decade old. While the overall number of foreclosures has declined dramatically, there are still some good foreclosure deals available. Unlike a traditional transaction where you can see the property & talk to the homeowner a foreclosure follows a specific procedure. The lender is the only point of contact and many times you won’t be able to see the interior of the property. With the right property there can be tremendous upside, but only if you know how to get your offer accepted. By being ready to act and submitting the right price you have a much better chance of starting the process on the right foot. Foreclosure deals have declined but they may still be able to offer upside in the right situation. Here are five tips to help secure a foreclosed property.
- Get financials ready. The starting point for any offer are your financials. As the foreclosure process has changed over the last decade the one constant is that the lender needs to be assured the offer they accept will close. 99% of all offers accepted will be cash offers. Even if you don’t think you need it, you should update your proof of funds every few weeks. When a foreclosure becomes available you will need to quickly prepare a statement with your name, account information and current balance. Without this the lender will usually not consider the offer, regardless of the price. If you are working with a hard or private money lender it is important that you can get this information in a timely manner. Most foreclosure deals are time sensitive and often the first offer will get a jump on the competition.
- Work with a foreclosure savvy broker. Not every real estate broker you work with knows how to handle foreclosures. For starters, some brokers are tapped into the real estate owned (REO) department with some lenders. Based on their performance they will get listings that other brokers do not. This can not only give you the inside track for some deals but can help get the price you want. If the broker does not handle foreclosure listings they need to know how to handle offers. There are a few additional documents needed and requirements for submission. If your offer does not have everything in the first shot it may be discarded or thrown to the bottom of the pile. By no fault of your own, you can miss out on a property you really want. Some brokers do not want to deal with the excessive paperwork or prolonged process with foreclosures. It can be a good idea to work with a broker that knows how to handle foreclosures and one that is better with traditional listings and deals. A foreclosure savvy broker can often be the difference in getting your offer accepted and wondering what happened.
- Understand comps. Price alone should not be your determining factor when pursuing a foreclosed property. Just because you can get the property at a discount, doesn’t necessarily mean you have a good deal. Prior to making an offer you and your real estate agent need to dig into the comparable sales and current listings. If the listing is public you may be able to get into the property, but in most cases, foreclosures are sold without interior access. This is the risk you take for getting the property at your price. It is important that you factor in the worst-case scenario and always know the comps. Most foreclosures will be flips that need an end buyer. The comps will influence what an end buyer is willing to pay, regardless of the work you put in. You may be able to get a great deal, but if you can’t turn the property over you will be stuck with a pricey asset.
- Make strong initial bid. Real estate is all about supply and demand and knowing which party in the transaction has leverage. By overplaying your hand and assuming the lender is desperate there is a good chance your offer will be rejected. There is a fine line in any offer between getting the discount you anticipate and still ending up with the property. With any foreclosure it is important to make your first offer a competitive one. Throwing in a low-ball offer and seeing if it sticks you give yourself no chance at negotiation. With a strong initial offer you get the lenders attention and can start some back and forth. Even if they don’t accept your offer they should counter and give you some idea of where they may end up. If you are not in the ballpark you will know much quicker allowing you to move onto another property.
- Be ready to respond. As simple as it sounds lenders want to work with buyers that will actually close and make the transaction a smooth one. They are not going to wait around a few days for you to decide what you want to do with the property. The sooner you can respond the better you chance of securing the deal. You and your real estate agent should work in tandem to supply anything they need. This could be a counter offer, signature on a document or updated proof of funds. The more organized you and your agent are in getting these offer the better chance you have.
Just one quality foreclosure deal a year can have a tremendous impact on your portfolio. Use these five tips to help get more foreclosure offers accepted.