Purchasing a Foreclosure
First of all, no disclosures are provided, since there is no owner occupant to supply them…
…and there is no legal obligation for a foreclosure seller to investigate. The bank acquired the home because no one purchased it at the foreclosure auction. But banks do not want the responsibility of owning property, so they typically price these homes at below market rate to generate a quick sale. In my opinion, pricing is the benefit — and the only upside — of buying a property that has been foreclosed on. These properties are carried on the lender’s books under the category of Real Estate Owned, hence the acronym REO.
The process of purchasing an REO is completely dictated by the lender-seller’s established procedures…
…and are set-up entirely to benefit of the lender in every regard. Offer responses are typically conveyed in the form of a counteroffer utilizing a form created by the lender’s attorney, designed to minimize their liability, suit their convenience, and compel you to move forward as quickly as possible. However, this counter offer is usually presented with no signatures (no absolute commitment to proceed), along with a notification that the ‘contract’ will not actually be binding until all buyer contingencies are removed and that until then they may entertain any and all other offers.
Like the 400-pound gorilla of infamy, they do pretty much get to call the shots.
And, being an institutional entity, there is seldom any identifiable individual on the other side whose sense of fair play or professionalism can be appealed to for fairness during negotiations.
So my first question to anyone thinking of buying a foreclosure is: “do you have the temperament…
…for such a transaction” — meaning can you participate without great attachment to outcome and are you willing to incur inspection costs with little hope of getting the lender to make any concessions in response. If you can, then you could possibly enjoy an excellent value from buying under these circumstances.
Having a savvy agent to represent you is a good place to start.
I will begin by contacting the listing agent — to initiate building a rapport with them and to learn as much as I can about the property and the lender’s reputation and practices. I will also urge you to research the property’s history from public records, have a building inspection performed, and speak with neighbors about the property.
A lender’s counteroffer may be presented as if it were cut in stone.
And, though it may not be, before making the offer is the correct time to begin identifying any substantial divergence in terms — before proceeding forward (rather than making a half-hearted offer and counting on being able to rectify differences later).
All communications typically take days rather than hours to accomplish…
…(particularly after escrow has opened) and timing will invariably be on their side — making it best to be quite clear on your parameters at this early stage. Though you can certainly ask for concessions as a result of any discoveries made during your contractually allowed period of investigation, your most powerful bargaining chip will always be your willingness to walk away — which typically lessens over time.
Dealing with foreclosure lenders can seem unsavory…
…and it has taken some practice for me to be at ease with the process. But, once I let go of the idea that these deals should play out in the same tidy, respectful manner that I strive for in conventional transactions, then I was able to accept them for what they are — unique possibilities that can sometimes offer extraordinary potential for return on investment, but with the offset of being higher risk and a more stressful transaction.
Despite the many differences, my job is the same as in a traditional purchase transaction…
…to look out for your best interest, to provide access to relevant data for making well informed decisions, and to negotiate on your behalf to get you the best deal possible. But as mentioned earlier, these properties are few and far between in today’s market (in Spring of 2020 there were just nine such properties in all of Sonoma County, ranging in price from $200,000 to 1,200,000).
If you want to specifically search for properties that have been foreclosed on in Sonoma County…
…I can set up a saved search that will send automatic updates to you. If you are ready to go out looking at property with an agent experienced with the Sonoma County REO market I am ready to accompany you. If you’ve already been looking at foreclosures in Sonoma County on your own, are preapproved, and ready to make an offer, I’m ready to assist you. Or perhaps you’d just like to discuss your options. Give me a call, I’d be happy to talk with you. Just ASK