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RealtyTrac, Inc., the
leading online marketplace for foreclosure properties, provides all the resources that home seekers, investors and realtors
need to locate, evaluate and buy properties at below market value. Founded in 1996, RealtyTrac sets a new standard for online
real estate services by offering the largest database of pre-foreclosure and foreclosure properties, with more than 650,000
properties across the country, comprehensive property data, productivity tools and extensive professional resources. RealtyTrac
hosts close to 2 million unique visitors monthly, and is the exclusive foreclosure data provider to AOL, Home Gain, MSN House
and Home, The Wall Street Journal Real Estate Journal and Yahoo! Real Estate.
Buying a Foreclosure Property
Below Market Value: Five Tips from the Pros
House hunting can be a very daunting experience, especially in
today’s real estate market. Both investors and home buyers have been priced out of the market by escalating costs, and
good real estate deals are increasingly difficult to find.
But there are bargains out there, for people who know
where to look.
“For people willing to do some homework, the foreclosure market offers some of the best opportunities
in real estate today,” explains James J. Saccacio, chief executive officer at RealtyTrac, the leading online foreclosure
marketplace.
Web-based services such as RealtyTrac give consumers access to foreclosure and pre-foreclosure information
that was previously available only to professional real estate brokers and investors. Today, homebuyers can use these services
to assist them identify and research potential home purchases, as well as the tools and professional resources they need to
help them close the deal.
With interest rates ticking up and ARMs adjusting upward, experts predict an increase
in the number of foreclosure properties on the market. RealtyTrac, which provides all the foreclosure data for both MSN House
and Home and Yahoo! Real Estate, has already compiled a list of over 550,000 foreclosure properties across the country.
“Foreclosure properties can be a terrific investment, or give home buyers a much more affordable option than
traditional properties,” notes Saccacio. “But they’re not a way to get rich quick, and a foreclosure purchase
needs to be approached in an educated, intelligent manner.”
Saccacio offers five tips to help you close
a deal on a foreclosure property:
1. Learn about the different types of foreclosure properties, and the
foreclosure process.
There are three basic types of foreclosure properties, representing different stages
in the foreclosure process: notice-of-default (NOD) and notice of trustee sale (NTS), which are both pre-foreclosure properties;
and real-estate-owned (REO), a foreclosure property which has been re-purchased by the bank.
For most consumers,
buying a pre-foreclosure property from a private homeowner is the best option. It’s important that both the buyer and
the seller see the situation as a win-win situation, in order to ensure a smooth process. In this case, the seller is able
to get out from under a mortgage without destroying their credit rating, the lender is saved the time and expense of foreclosing
on the property, and the buyer gets a below-market price on a home.
Foreclosure auction sales are typically the
domain of the professional investor. These properties are formally in default, and sold to the highest bidder at an auction.
Buyers are required to be physically present at the auction, and must pay 100% of the sale price in cash, on the spot. Though
foreclosure auctions can offer significant savings, they are not for the feint of heart or the uninformed. Unless the buyer
is already familiar with a particular property, there is usually little time to examine it. And the buyer will be competing
against professional investors—and sometimes even the lender—at the auction.
Once the lender officially
reclaims a home, it becomes a real-estate-owned property (REO). While REO properties typically offer more time for evaluation
and a more standard bank-managed transaction, their prices are usually very close to full retail market value.
CHART:
Stages of the foreclosure process Stage Positive Negative Pre-foreclosure: Notice-of-Default, Notice-of-Trustee Sale - Highest
potential savings - Potential win/win scenario benefits all parties - Chance to evaluate property - Buyer / Seller negotiations
can be difficult\ - Time pressure to complete transaction before auction Foreclosure: Auction sale - High potential savings
- Immediate property ownership - 100% of the sale price required in cash - No time to evaluate property - Competing with professionals
Foreclosure: Real Estate Owned (REO) - Affords significant time to evaluate property - Traditional bank financing - Lender
often rehabs property - Lowest potential savings
2. Secure financing early
It’s
important for a buyer to be pre-qualified before engaging in discussions with a seller. This ensures that the buyer is in
a financial position to purchase the property, and is in the strongest possible position to negotiate. It’s best to
work with a lender who understands the foreclosure process, and can guide the buyer through certain steps, such as ensuring
that a property is FHA-compliant. Another reason to consider pre-qualification is that not all lenders finance foreclosure
properties. Having approved financing in-hand makes negotiations with both the seller and the lender easier, and may even
make it possible for the buyer to simply cure the default and take over the existing loan to reduce loan processing fees.
3. Engage a real estate agent as a “buyer’s representative”
Most people hire a real
estate agent to sell their home. These “seller’s representatives” are charged with making the sale and negotiating
the best deal for their clients. “Buyer’s representatives” have the home buyer’s interests at heart,
and are charged with finding the right property and negotiating the best price for their clients. Picking the right real estate
agent will make a buyer’s life much easier. There are agents who specialize in the foreclosure market, with specific
experience in REO properties. Look for an agent with foreclosure transaction experience, as well as knowledge of local, regional
and state laws. But it’s also important to consider the agent’s knowledge of the area; their ability to close
a deal; and their access to other professionals (attorneys, lenders, mortgage and title professionals) to ensure that the
buyer is in good hands.
4. Do your homework
Stocks offer higher potential returns
for investors than traditional savings programs, but are also riskier. Similarly, purchasing foreclosure properties is somewhat
more risky than buying traditional real estate properties, but offer much higher potential savings. With the right examination
and due diligence, buyers can significantly reduce the risks. It makes sense to give any property under consideration a thorough
examination. Here are eight steps for doing a professional-level exam. CHART: Examination process steps
·
Identify desirable neighborhoods – Identify specific neighborhoods where you’d like to live or own a home. This
will limit your search to a manageable size for you and your real estate agent, and give your a sense of relative property
values.
· Cast a wide net – There are a number of Web-based services that can put hundreds of thousands
of foreclosure properties at your fingertips. Since the best savings are often found in pre-foreclosure properties, it’s
important to check the percentage of pre-foreclosure (vs. REO) properties in any database before subscribing.
·
Determine the property value –Look at the original purchase price, and recent comparable property sales to determine
the current value of the property.
· Find out the amount in default and the remaining loan balance –
In order to determine a reasonable offer price, you’ll need to know—at a minimum—how much money it will
take just to satisfy the debt to the lender.
·
Run a legal investing report – Before purchasing any foreclosure property, make sure it is free and clear of any bankruptcies,
tax liens or other financial liabilities. · Assess
the condition of the property– If at all possible, visit the property, ask your realtor’s opinion, and review
pest and structural reports to make sure that the property is in acceptable condition, or to determine how much of a rehab
budget you’ll need to build in to your deal. ·
Build a positive relationship with the seller – Before purchasing the property, try to make sure that you’re entering
into a win-win situation with the seller, so that they’ll do what they can to make the process easier and leave the
property in good condition · Leverage your timing
– Knowing when a property is going to be auctioned gives you an extra bargaining chip when negotiating with the seller
or the lender. 5. Make a realistic offer Despite what you may see on late-night cable TV, investing in foreclosure
properties isn’t a sure fire “get rich quick” formula. Lenders aren’t likely to give properties away,
particularly in a real estate market where prices continue to rise. And homeowners in financial distress may be difficult
to deal with, particularly early in the foreclosure process. The keys to a successful foreclosure property purchase are diligence
and patience. As a rule of thumb, the best savings can be made at the pre-foreclosure stage, where home owners can avoid a
foreclosure and lenders can save the time and cost involved in going through the process. Another critical point in the process is immediately prior to the auction date, when all
parties might be most open to a last-minute solution. It’s not unusual to save from 10-30% of the market value on a
foreclosure property, and certain properties offer savings of 50% or even more. An educated buyer—one who knows how
much is owed on the property and what its market value is—can usually come up with a realistic offer; one that offers
significant savings, while meeting the requirements of the lender. Now go out and familiarize yourself with the resources and tools available to take advantage of the opportunities
offered by this formerly-hidden real estate market. With the experts pointing toward significant growth in available foreclosure
properties, there’s never been a better time to line up your resources and get informed. 
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