Turbulent Times For First Time Home Buyers In Foreclosure Market

scottsent August 8th, 2008

SMART Thinking Required To Get

Offers Accepted

I know your time is valuable, so I will cut to the chase. This market is unlike ANY home market you have ever seen or heard about.

It’s wrought with heavy investor/speculator activity in the $0-300K range, unmotivated banks, and transactions that can take 3 times as long as normal.

To improve your chances exponentially, here are a few tips:

  1. Short Sales - IGNORE THESE!

    • In my experience, these NEVER close escrow.

    • Sure, it’s possible 1 out of 10 do, but the ones that do take about 6 times as long as a normal private owner sale. You will have wasted MANY MONTHS of your life, along with a rollercoaster ride of uncertainty. Skip this and you’ll save yourself alot of grief.

  2. Seek out homes with Long Days on Market (DOM)

    • New listings flow through to thousands of email inboxes of investors and home buyers. Newly listed homes are likely to get as many as 15 competitive offers on them in the first week or two. Even if your offer is great, you often have a 1 in 15 chance of getting it accepted!

  3. Avoid Competitive Bidding Situations

    • As per #2 above, competitive bidding always ends in the buyer who ‘wins’ making an offer well above asking price, sometimes up to $15,000 higher. In many cases, you cannot avoid it, there may always be an offer or two to compete with. Just avoid those that have more than 5 offers.

  4. Someone’s undesireable feature is anothers OPPORTUNITY

    • Life is all about trade-offs. If you are looking to buy a home primarily for shelter, want to keep your mortgage low, and aren’t overly concerned with appreciation or keeping up with the Joneses, then this advice is for you.

    • Look for homes near busy streets, schools, airports, or noise nuisances

  5. Seek out homes with superficial issues, like old wallpaper, dirty carpet, etc

    • Paint, carpet, wall plates, etc. are a whole lot cheaper than the difference in price of a move-in ready home. See beyond the superficial as to what the home CAN be with a little TLC.

  6. AVOID Homes Listed as ‘Fixers’ or With Many Repairs That Would Be Required To Fund A Loan

    • Don’t think you can get bank sellers to pay for many or ANY repairs.

    • Damage to a property is a RED FLAG - your loan may not fund, so no sense wasting a lot of time trying to buy something you will never get a loan on!

    • Examples of damage to avoid :

      • A/C or Heater Vandalized or not functioning

      • Broken Windows

      • Structural Damage

      • Electrical Issues (faulty wiring, missing light fixtures, etc.)

      • Plumbing Issues (Missing, damaged, or broken fixtures)

      • Roof needs to be replaced

  7. Seek out homes with several price reductions, combined with long DOM

    • Banks are more willing to work with a buyer and unload a home after it has sat on the market for 6 months to a year, with many price reductions. The banks understand they have limited options at that point, and are generally easier to work with.

  8. Don’t expect to negotiate aggressively with Bank Sellers (Foreclosed Properties)

    • Logically, you as a buyer have the upper hand in a declining market.

    • Banks are not logical, and you will be dealing with their employees.

    • Bank Employees could care less about you getting into their home.

    • Banks list these homes at the net amount they want based on a Broker Price Opinion or Appraisal.

      • They already have a good idea of what the home is worth.

      • You often have to come in above asking price, because you will be asking for a closing cost credit back (which reduces the seller’s net proceeds)

      • Asking Price - Closing Cost = Asking seller for a discount

    • Bank owned homes are sold AS-IS

    • You will be expected to pick up the tab for traditionally seller paid items:

      • Section 1 Pest

      • 100% Title & Escrow

  9. Just because this is a foreclosure/declining market, doesn’t mean there are no buyers to compete with you!

    • There is a ton of investor activity at this price range - if you don’t want to write an offer that meets the above terms, be aware that an investor will be happy to buy the property instead of you.

  10. Only tour homes you actually plan on making an offer on that day!

    • Things happen quickly in this price range of foreclosed homes, especially in the $0-$300K range.

    • There are thousands of homes on the market and you cannot tour all of them, it’s physically impossible.

      • Do your homework! - First find 10 of the best homes on the MLS, view maps of the areas they are in, and make sure those areas are suitable for you

      • Drive by these 10 homes and view the neighborhood and exteriors in person. Peek in the windows if they are vacant.

      • Widdle this list down to the 3 best homes you want to tour inside with your Realtor, with the intent of writing an offer that day.

      • Tour the homes and write an offer.

    • Touring homes just to get your feet wet isn’t productive. There are many virtual tours on line you can use for that purpose. Instead, set a goal of making an offer and do it. Everyone will be happier as you will actually be making progress.

  11. Be HONEST with YOURSELF and your Realtor/Lender

    • About your goals and ACTUAL Financial Situation

      • Surprises after months of work don’t help anyone

    • Don’t write up an offer because you want to make the Realtor happy. That is a waste of time for everyone. If you aren’t happy with any of the properties, speak your mind.

    • Writing an offer just to please the Realtor, with no intention of going through with it, is getting many people involved working on your transaction for no good reason (i.e. The Seller, Listing Agent, Title/Escrow, Lender, etc.).

  12. Listen to the Professionals!

    • Just like you wouldn’t drill your own tooth or pilot a 747, you should at least recognize that you are hiring a Realtor & Lender to help you navigate these uncharted waters.

    • Leverage the professional’s experience so you can avoid many headaches and emotional rollercoaster rides.

    • Your goal is to get into a home in a timely manner - not 3 years. So, if you rely more heavily on the professionals advice, you will get there much quicker.

I hope you find these tips help you get up to speed in this turbulent market!



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