Buying Foreclosed Homes

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Submitted by EmilyHicks on January 5, 2011 - 8:33am

I have decided to use FHA loan for my first home buying. I am getting advice that I should look for foreclosed homes that might give me 10% to 15% discount compared to a normal listing. I have several questions about buying foreclosed homes:

1. Do I need a realtor specialized in foreclosed home? My sister-in-law (our realtor with 2 yr experience) seems to discourage us from trying to buy foreclosed homes or short sale homes. Is she inexperienced, or the effort putting into buying a distressed home to cumbersome that it is not worth it?

2. Is there any problem with buying a distressed homes with FHA loan? I am planning to put about 10% down.

3. Is it true that buying distressed homes on average will give you 10 to 15% savings?

thanks,

Submitted by UCGal on January 5, 2011 - 9:46am.

It seems that she's discouraging you from a significant portion of the market.

Downsides of short sales and foreclosures.
- both need approval from the bank... which can take more time than a traditional sale.
- with short sales you also need approval from the "seller". Ego's could get in the way.
- with short sales there can be 2nd lien holders that can kill the deal.
- with short sales there are often short sale negotiators mandated by the listing agent... and paid for by the buyer.

That said - the market has too many foreclosures and short sales to ignore that inventory.

Submitted by SD Realtor on January 5, 2011 - 11:29am.

In my opinion you are getting poor advice.

First off, if you plan to buy a foreclosed home using an FHA loan, you will have to be quite competitive when it comes to price. Second off, if you have been reading the posts here, with the way inventory is now, getting a home 10 to 15% off the listing price is not happening. Ask whoever is giving you this advice to pull up closed sales in the area of town you are looking at and give you the difference between list price and closed price. I think you will see that in no way does the actual fact bear out what you are being told. Third thing, when you get an FHA loan your home will be appraised by an FHA appraiser. There may be facets of the home that the FHA appraiser will want to have repaired, that the REO lender will not want to fix. Thus any home that is a serious fixer, that may be priced at a discount, may very well not pass an FHA appraisers inspection.

So getting back to your original question, yes it sounds like you need to work with someone who has practical experience in all types of sales, distressed, reo, short sales etc. At the very least the advice you appear to be getting is not helpful.

As UCGAL wrote a good percentage of the present and future inventory will be distressed. Short sales are frustrating but they do close and if you have patience they provide opportunity. Honestly in this day and age, to get a home at a serious discount, presume something is wrong with it and work will need to be done. If that is the case it may be more challenging to get THAT home with an FHA loan.

There should be no excuses not to look at all types of homes. Cumbersome or not the process is not that hard. You as a buyer should expect to know AHEAD of time what to expect and how the process will roll out regardless of whether it is a short sale or an reo or even a standard sale. You should also be explained the EFFECTS that your financing decisions will have on your real estate transaction....ie will it help or hurt my odds of getting a place in a competitive situation.

It doesn't sound like you are getting that.

Submitted by NotCranky on January 5, 2011 - 11:51am.

I agree with the disservice issue on a couple of fronts.

The good short sale listing agents stepped up to the plate and did some of the heavy lifting in this bust. To me it is unconscionable for a selling agent not to work with them out of professional respect.

The others spoke to the disservice to the buyer so no sense in repeating it.

Submitted by Vod-Vil on January 5, 2011 - 12:16pm.

If your going to put 10% down,why bother with an FHA loan.

Submitted by no_such_reality on January 5, 2011 - 2:05pm.

EmilyHicks wrote:
1. Do I need a realtor specialized in foreclosed home? My sister-in-law (our realtor with 2 yr experience) seems to discourage us from trying to buy foreclosed homes or short sale homes. Is she inexperienced, or the effort putting into buying a distressed home to cumbersome that it is not worth it?

Yes, you need someone that is versed in the foreclosed and short sale processes. Not the generic process either, the real process used by each institution. Bank of America's process is different than Wells which is different than the others. They are all pretty much the same, except all the stupid little gotchas and delays and turn-around times that will drive you absolutely bonkers.

In addition, you need your primary agent to have GREAT people skills. I mean really GREAT. They need to be able to hound the bank's asset manager, the selling agent, the 2nd lien holders, the mortgage guy, etc in such a way that they get and keep things moving and keep you in the loop while simultaneousness managing your expectations and keeping things pleasant so all parties involved don't decide to just do a big screw-you cause they're fed up. For example, you will need your agent to be able to determine what's gong on when the seller's agent says they're waiting on reply when in reality the bank is trying to squeeze another couple thousand dollars out of your sellers and the whole deal is on the verge of the toilet and the seller's agent is feeding them the same line of baloney for three weeks... You need to be prepared for the banks' asset manager going on vacation in the middle your deal and everything going on hold for two weeks. You need to be prepared for the bank to ignore it's deadlines and then provide you less than a week to complete the process. You need to be prepared to close within 30 days on submitting your offer and then potentially have to sit on your thumbs for six months.

That is short sales. Your agent should tell you that. If they don't they aren't your short sale agent. Pre-approved short sales? They may be better, or they may not, BofA restarts the process, or at least used to.

So in reality, yes, you need someone well versed in buying a shortsale or foreclosure. Short sales are worse. Foreclosures are competitive. But, the real question is "Are you ready to buy a short sale?"

Really think about that one, because if you're not, you're really doing everybody a massive disservice.

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