Buying a Foreclosure
Atlantic & Pacific Real Estate has a wide selection of foreclosure listings available in many states. These properties range from distressed “fixer-uppers” to investment opportunities and even to luxury homes.
Common misconceptions about buying a foreclosure are:
No inspection period – You can have inspections; although most of the time they are for informational purposes only.
No clear title – You do get clear title with no liens unless otherwise specified.
No financing contingency – You can have a financing contingency, but you must often have lender approval.
Cannot close in 30 days – You can close in as little as 30 days when all bank processes are followed and lending is pre-arranged.
Banks (sellers) will accept very low offers – There may be a minimum offer amount that the seller is willing to accept, but there are great deals out there!
Banks will take offers for previous loan balance – Previous loan balance is NOT an indicator of the property value or list price.
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What price does the bank (seller) want for the property?
The same as if a private seller was listing their home. They want the listing price or better.
How did the seller come up with their listing price?
The sellers typically try to determine fair market value through a combination of Broker Price Opinions and appraisals on the property. The condition of the property was also taken into consideration.
How do I place an offer for the property?
All offers must have either a pre-qualification letter or proof of funds attached to them. A pre-qualification letter can be obtained by going to a direct lender. Proof of funds can be a bank statement showing the balance in the account exceeds the offer amount or a statement from a securities company. A prequalification letter must be current and contain the following information:
Once you have obtained proof of funds or a pre-qualification letter, then you should begin looking at houses. Once the home is located (in this case a foreclosure), you either call the listing agent directly to let them know that you want to purchase it (if you do not have an agent), or you tell your agent that you want to place an offer on the home.
What should I offer for the property?
You should make an offer that feels comfortable to you. However, if you are going to submit an offer substantially below the list price, be prepared that you may: (1) be outbid by other prospective buyers (2) need to wait an extended amount of time for a seller’s answer; or (3) be forced to look for a different property if your offer is not accepted.
Will the seller look at more than one offer?
YES. And the seller will not consider a property under contract until the seller has signed all contract forms and addendums. (
They will not do this until the buyer has signed all of these forms first). Therefore, if you make an offer on a property and receive seller addendums back, you need to review and (
if you agree to the terms) sign them immediately and return them to the listing agent.
(Never cross out or make changes on the seller addendums unless you are willing to have the seller treat such changes as a counter offer that can result in your offer subsequently being rejected by the seller)
Will the seller make repairs?
Most foreclosures are sold “AS IS, NO DISCLOSURES.” This means the property is offered “as is,” without repairs or upgrades. The seller has already reduced the price of the property for any damages or needed repairs, which are reflected in the listing price. As for “No Disclosures,” the seller cannot provide disclosures because typically the seller has not personally seen the home to have knowledge of its condition. Foreclosure sellers generally rely on what the listing agent and appraiser have seen.
Will the seller allow for an inspection period?
Typically, yes. This inspection period is normally 10 days long. It is designed so that the buyer can have a home inspection, termite inspection, septic inspection, survey (if desired) and appraisal completed. An appraisal is part of the inspection period.
The inspection is not designed to allow the contract to be re-negotiated. Generally this will kill the transaction if the buyer attempts this. The seller will not activate utilities if the condition of the property is deemed unsafe. Ask the listing agent for more information.
Does the seller have any special forms?
Most sellers do have what they call “special addendums.” These forms vary from lender to lender. The addendums supersede the original purchase and sale agreement and become part of the purchase and sale agreement. Most of these forms have a few items that the buyer must pay close attention to, such as per diem charges, inspection periods, closing costs, and earnest money requirements.
When will the seller respond to my offer?
Response times on an offer can vary from just a few days, to much longer.
Should I get a home inspection?
Yes. A thorough home inspector can provide the buyer with valuable information.
Can my agent provide me a home inspection?
No. A home inspection can only be performed by someone associated with ASHI (American Society of Home Inspectors) or NACHI (National Association of Certified Home Inspectors).
Will the seller pay my loan closing costs?
Closing costs, along with other aspects of the transaction, are subject to negotiation.
Does the seller accept FHA?
This depends on the seller and the condition of the property.
Will the seller finance the property?
This depends on the lender. If they do, it will be advertised as such.
Will the seller accept contingencies or a Lease/Purchase?
No. Contingency and lease/purchase offers are generally not accepted on foreclosed properties.