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  The top 5 things to know before you buy a foreclosure

Have we finally hit bottom? If you're looking to buy a home now - and plan to stay in it for a while or keep it for a while - there are plenty of bargains to be had on a foreclosed property.

Banks are often willing to sell foreclosed homes for up to 20% below market value just to get these troubled properties off their books. You will find that some banks will take very little off the price if it’s priced well and getting a good amount of buyer traffic and offers. With foreclosures at an all-time high in the past year, there's no shortage of these opportunities to pursue. However, prospective buyers should know that closing on that super-cheap distressed home is often a lot more complicated and risky than buying a home that doesn't have all of that financial baggage. 

1.  Finding Properties in Foreclosure

The biggest bargains can be found in areas where there's a large concentration of distressed properties. The banks with the most exposure to these areas are typically the most motivated to cut a deal since they don't want to get stuck with a glut of real estate they can't unload. But before you snap up the cheapest home you can find, make sure to do some research. Find out if the property is located in a decent neighborhood with good schools and healthy employment rates. (Local real estate web sites are a great place to start your research.) If you buy in an area that's losing jobs and is riddled with crime, home values are likely to take a lot longer to recover. Buying a foreclosure property is tricky business and just because it’s a foreclosure doesn’t always mean it’s a great deal. We’ve seen many foreclosure properties selling for more than they should because of the lack of understanding of real value. 

Avoid the promises of websites and services that tell you to search on your own and we’ll give you part of our commissions. Saving you $10,000 on a property that is $20,000 over priced is not a great deal. Other problems could show up when selling that great deal because of a negative factor that could have an adverse affect on this home and cost you much more than you thought you saved.  Working with an agent who understands the process and knows the area is your best sources to advise you through the process. Professional agents care about their business and invest their reputation on giving you the advice needed to make an informed decision, not just a quick sale. If you get the feeling an agent is just in it for a quick sale they might not be the best consultant for you.

2. Avoid Auctions

While there are a number of safe ways to buy a foreclosed property, bidding on one at a court auction isn't one of them. That's because you're buying a home sight unseen and without an inspection. You'll have no idea whether the home needs repairs and how much they might cost. Some of these properties also owe back taxes, a headache that's transferred to the new owner. And finally, in most cases, you'll need to pay cash for the home.

The least risky way to buy a foreclosed home is to wait until the bank has put it back onto the real estate market. These properties are called bank-owned or real estate-owned (REO). Before a bank hangs a "For Sale" sign, it pays off all the existing debts and taxes, and in many cases, repairs the home to bring it up to the standards of the neighborhood. Best of all, you should be able to buy a bank-owned property with a traditional mortgage. 

After the auction process, these homes will go back on the market and listed with an agent in the MLS. Some foreclosure website are good places to start looking but not always worth paying monthly fees to find out these homes will eventually end up on the MLS with an agent. Most pre-foreclosure homes are listed with an agent through the Short Sale process.

3.  Research Home Values 

Just because a home is being sold by the bank, doesn't necessarily mean it's a bargain. Home prices have fallen dramatically from their peaks in 2005 - 2006, a time when loose-lending practices allowed people of all credit ranks to easily obtain mortgages. Now, many homeowners going through the foreclosure process owe more on the mortgage than their property is actually worth. To make sure you aren't assuming an overpriced loan, we will research home values in the area. That way, you'll be better able to identify potential deals.

If you fall in love with a home in pre-foreclosure that's overpriced, then you can see if the bank will allow a short sale. This is when the bank accepts less for the home than the amount owed on the mortgage. While not an ideal scenario, accepting a lower price is often in the bank's best interest. Banks typically spend $25,000 to $50,000 during the foreclosure process. On top of that, they typically end up reducing a home's asking price to match current market values.

The success rate on Short Sales are much lower because of the time frame it takes, (4 to 8 weeks) to respond they usually end up with more than one offer, sometimes many offers. In this scenario you could wait a long time to just hear they aren’t willing to sell as a pre-foreclosure. If the house has more than one loan (Deed of Trust) on it and with more than one lender in most cases we’re asking the second trust (DOT) to get nothing, in most cases they are willing to take their chances on the market.  Without the second trust willing to agree the Short Sales will not work and will go to foreclosure.  Some agents will list a home as a Short Sale without the banks approval and this lower the chances as well.

4.  Line Up Financing First

While it's always a good idea to get pre-approved for a mortgage before you start shopping for a home, it's even more critical when you're shopping for foreclosed properties. Even if you have stellar credit, some lenders won't make a loan on a distressed property. Other lenders will only offer a mortgage if the house is in decent condition.

If your loan officer is willing to make a loan on a foreclosed property, find out what criteria the home needs to meet in order to qualify for a mortgage. You can expect the lender to allow cosmetic repairs, but be unforgiving of termites and other serious fixes.

5.  Get It Inspected

Even if a home is brand new you want to get it inspected. But inspections are especially important when you're dealing with homes in foreclosure. When people have trouble paying their bills, they typically put off the regular maintenance on their homes. Once a home is seized by a bank, it then sits vacant and falls even further into disrepair. In a worst-case scenario, a homeowner could be so angry he lost his home that he actively destroys a property before he moves out. Without an inspection, you won't be able to estimate the cost for repairs or be able to report the home's true condition to your lender.

Looking out for your best interests:
By asking a REALTOR to act on your behalf during the purchase of a home, you create an Agency Relationship and become the Realtor's client. REALTORS always owe their clients full fiduciary duties, such as loyalty, obedience, confidentiality, accountability, duty of care, and full disclosure of all pertinent facts.

Getting the best deals - Know the Market:
What have similar properties sold for in the immediate area? How long were they on
the market? How does this one compare? Is it over-priced, under-priced, or fair value? What type of market is it - is it a Seller's, Buyer's or a Balanced market? By having this information at your fingertips, you are in a position to negotiate the best price and take advantage of any opportunities that may show up.

Negotiation expertise:
While a REALTOR does many things, one of his or her most important functions is to negotiate on behalf of their clients. When you purchase a home, you want the best deal possible. Your REALTOR's job is to facilitate this by drawing up legally binding contracts, assisting in negotiating offers, offering advice and perspective and, if needed, acting as a mediator during any potential disputes between the you and the seller.

Finding the right home and neighborhood for you:
REALTORS spend a lot of time and energy making sure they know their local market inside and out. They are familiar with the current market values of properties in the areas you are looking and are your best resource for finding the right home.

Professional experience:
A REALTOR brings to the table all of his or her knowledge, training and negotiation skills, and will explain exactly what you can expect from the buying/selling process. He or she will be able to explain your rights and obligations, help organize and strategize, and even discuss financing options.
All REALTORS are members of the National Association of Realtors (NAR). This organization requires all of its members to adhere to a strict Code of Ethics and Standard of Business Practice. The Code and Standards are very important because they assure that all REALTORS offer the highest level of service, honesty and integrity possible. All REALTORS are subject to constant professional monitoring that keeps them directly accountable to the individual consumers they serve. NAR also ensures that all of its members are knowledgeable and highly trained in order to better serve the public, and offers ongoing education courses so that REALTORS continue to meet the highest professional standards in a constantly changing industry.

Determining your "wish list":
What is it that you want from your new home? A particular style, design, lot type? Proximity to schools, services, work? A pool? A two-car garage? A specific price range? A REALTOR will help identify exactly what it is you are looking for and ensure that you get to see all the homes that meet your criteria.

Assist with financing needs:
REALTORS are familiar with all of the complexities involved in the pre-qualification, approval and negotiation of mortgage rates. Like many industries, banks are experiencing quite a bit of competition and are often willing to flex from their quoted rates. Experienced REALTORS can often assist in finding the most competitive rates and terms available.

Access to Multiple Listing Services:
REALTORS have exclusive access to the Multiple Listing Service (MLS). The MLS system also allows a REALTOR to examine all properties for sale and short-list the ones that are right for you. This not only offers more choices but also saves you valuable time and effort. 

The Ashburn Team
Michael Severin 
Associate Broker

Michelle Palomo, ABR

RE/MAX Select Properties
20937 Ashburn Road STE# 200
Ashburn, VA 20147

Office: 571.223.2236
Cell: 571.233.5712
Tollfree: 1-866-858-1300