The Science of Purchasing Foreclosures.

If you read the Market Update below, you will notice that 41% of our sales this past month are what are known as "distressed properties."  Since this number is large and appears to be still growing, we thought it might be beneficial to remind you what is involved in buying a distressed property.   We know we have referred to this information before but I think it continues to be a timely reminder.

According to a May 5, 2010 article in CNNMoney.com, there are 3 stages of foreclosure:  1)  pre-forclosure (commonly referred to as short sales), 2) sheriff's auction, and 3) REO (real estate owned by the bank) sales. 

When you purchase a pre-foreclosure (short sale), you will need to negotiate with the seller as well as the bank to purchase the home.  Negotiation is most difficult with the bank because it is time consuming.  The bank only works 5 days a week and not on holidays.   Other than the long waiting time, you still have the opportunity to do thorough investigations but it is highly unlikely that the seller -- who is loosing his home  -- will do any repairs.  The bank doesn't yet own the home so they will not be responsible either.

The sheriff's auction comes if the attempt at the pre-foreclosure sale (short sale) has failed.  The clock has run down and the home goes to the court house steps where the trustee sells it at auction.  This type of purchase will get you the lowest price on a home but it is fraught with peril.  Usually the subject home is not available for inspection and what you buy is what you get -- repair bills and all.  In an area such as ours in the mountains, with extreme weather this could mean that something catastrophic such as broken pipes or snow damage has occurred.  This type of purchase is better left to the professionals -- contractors or investors who do this as part of making a living.

After the sheriff's auction, if no one bids on the property, the bank then owns it and they generally fix it up and put it on the market with a real estate brokerage.  This is probably the safest and best way to purchase a foreclosure property as you will have the opportunity to inspect and decide based on those inspections if you want to proceed with the purchase.  This type of sale is generally "as is" though since the bank has probably already done all it is going to do getting the house ready to sell. 

The other thing that happens with these REO sales, and we have seen it happen here, is that the bank puts a ridiculously low asking price on a home which generates lots of excitement amongst potential buyers.  They get caught up in a bidding frenzy and by the time the winning bid is opened, the house has been purchased at a not such a good deal price as was originally expected. 

We hope that this information will help to make you a more well informed purchaser should you decide to move on some of these opportunities.  In both the pre-foreclosure and REO instances, we are able to help.  If you would like to check out some of these in our area, follow this link.  If you have any questions about them, be sure to contact us. 

Kappy and Jennifer have a combined 40 years in the Real Estate Profession.  We are committed to giving our clients the most up to date Real Estate information and Stellar Service because, We Love Our Work and So Will You!  Call us or e-mail us for information about the Tahoe Truckee Real Estate Market.  By the way, if you think any of this information might be of interest to anyone you know, feel free to forward this newsletter.  We would really appreciate it!