With the real estate market in its second year of decline there are many people who have decided that buying a foreclosed or bank owned home is a good way to get a property inexpensively. In fact, there are many bank owned properties to be found on the market.
There is a glut of homes that are owned by the banks and the consensus is that it will increase over the next 3 to 6 months. But, buying a foreclosed home does not mean that you are going to get a good deal. It takes a lot of work and a lot of time to find the right property. I have met many who pursue properties in the bank owned market that say that they may have to look at 30 homes before finding a true gem.
So this is not an approach that one should take on lightly. There is no easy money to be made and it is very easy to get into a property that can be a money pit. But there are some opportunities out there if you spend the time to find them.
Primary Outlets
There are two primary approaches to finding bank owned homes. The first is in the traditional real estate market where the homes are being offered through real estate agents. The second is in the auction market where the home is quite literally auctioned off before a group of people.
Auctions
The auction process is the riskiest approach and an approach that I would only recommend to those who have the following qualities:
1) Know a lot about real estate and how to properly research a property
2) Know about the building or remodeling trades
3) Has a lot of time to do proper investigation
4) Can afford to lose deposit monies should the property not be what they expected
Let me explain- when a property goes to auction the buyer does not get to go through the traditional due diligence process. So before you go to the actual auction you need to sit down and research that specific property. You are looking to find out:
- how much is owed on the mortgages,
- discover if there are liens against the property,
- if there are taxes due to the state or town.
Prior to the auction you may have a very short period of time to inspect the property. In some cases you may not get to see the inside of it at all. So before the auction you may want to try to look at it if you can. The exterior is easy, just drive or walk by the property, if it is vacant you may be able to peer in the windows. What you are trying to do is get an idea of the condition of the property. Some things to look for:
- Does it need a roof
- is the exterior siding in good repair
- Does it need kitchen/bath updating
- does the heating system work
- is there extensive interior damage
- is the plumbing functional
Traditional Markets
Many banks will try to dispose of properties through the traditional real estate markets. This means that you can contact a local real estate agent or do some searching through the local Multiple listing services. This is a great way to shop for a bank owned property.
First you may have more information available to you without doing a lot of running around and searching. Two, you can actually go in and look at the house to check its condition. Three, you will purchase the home through the traditional purchasing process. That mean that you will make an offer and ask for a due diligence period. This enables you to have proper inspections done on the property so you know exactly what you are buying. If you don't like what you find during inspections you have the opportunity to decline the purchase of the property and get your deposit money back (provided you have stipulated this properly in the offer to purchase)
For those that want to buy a bank owned property but are not able to properly investigate a property on their own, this is a great approach to take. I will warn you however, that banks are not very responsive. That means that it may take a long time to get a response from them once you make an offer on a bank owned property. Anticipate 1 to 4 weeks for a response. But the payoff for your patience could be a great deal on a new home!
