Random Thoughts About Buying Foreclosures

(c)2008 Robert Smith
There's no doubt that there's a lot more foreclosure properties on the market and a lot more of them are selling. This post isn't as structured as most of mine are, but here are some general observations I've made on buying foreclosures over the last few weeks.

First, look at how long a property has been in the MLS. I've seen some lenders refuse all but full price offers in the first two weeks of a listing. Why would they do this? To make sure it's priced right, or perhaps to try to spur multiple offers to get two buyers competing against either other. The number of showing a property receives in the first two weeks will tell if it's priced right. And they don't care if it's a cash offer or a mortgage-backed offer, either.

Second, when looking at the lower-end priced homes in a given area, you aren't going to be successful bidding ridiculously low. In my market area, for example, homes at $115,000 or less will probably sell within $5,000 to $7,000 of list price. It really is a waste of time to write that offer for $75,000, folks. Unless, of course, the home needs total rehabilitation, but then you have to re-add those costs into your 'project' scope.

Third, banks aren't trying to give away these properties. They are willing to wait. And if they don't sell they'll often put them up for auction. At most house auctions that I've monitored, the successful bid price is at least the price the bank would have sold the property at, anyway. Often, they sell for a higher price at auction!

If you're a first-time buyer, please think carefully about buying a foreclosure property. Let's say you're approved for $150,000 but you're monthly payment comfort level is really around an amount of $130,000. At 6.5% interest and a 30 year fixed mortgage, the difference between financing those two amounts is around $147/mo, or $821 vs. $948 on the mortgage payment.

That doesn't include property taxes, PMI, insurance, maintenance or any of the other stuff that goes along with owning a home. And often, property taxes on foreclosures have gone 'non-homestead', which adds another 19 mils to the property tax rate. Once a home is vacant, and often shortly after the Sheriff's Sale, the local assessor changes the status, so for at least part of the next year after pruchase, your property taxes will be higher.

It makes no sense for you to be looking at $160,000 or $180,000 houses thinking that you'll get a fantastic deal at your $130,000 comfort level, yet many consumers are doing this. It's a waste of time and makes the home buying process a lot more frustrating.

Get educated as to what kind of, or how much home you can buy for your price range. Look at houses, but also keep an eye on the ones that have sold. That's where the real value indication is seen. Honest, forthright discussions with a lender and a Realtor(R) that you can trust will help you get the most value in the home buying process, especially as a first-time home buyer.