Buying a foreclosed loft may seem to some like a scary process, but it’s similar to buying any other home, especially if your offer is on a bank-owned property versus one sold at auction (which can be a tricky process for the inexperienced).
There are, however, many nuances that any potential buyer has to be aware of when dealing with foreclosures, such as checking for liens against the title, or knowing that on a foreclosure “even something as simple as cracked paint can make an FHA loan impossible.
Where to find foreclosures
Finding foreclosure deals in Los Angeles can be simple, and worth a try for first-time homebuyers or those wanting to get into real estate investing. Here are some ways of locating Los Angeles foreclosures:
- Leading real estate portals like www.dtlacondosandlofts.com have local foreclosure listings.
- Bank websites sometimes list properties in their possession that are for sale.
- Asset management companies hired by lenders to handle foreclosures offer a list of available properties.
- Auction companies often hold auctions in which they sell huge volumes of foreclosure homes on a single day.
- Real estate agents can point to foreclosed homes in your area.
- “For sale” signs in yards that say “foreclosure,” “REO property” (Real Estate Owned property) or “bank owned,” indicate foreclosed homes.
Determining the right price
After finding a foreclosure that you want, a key step is negotiating the right price. In most cases, foreclosed condos are already discounted from their appraised value, but you can still negotiate down from list price as you would with any home.
When there are a variety of foreclosures on the market, buyers can sometimes get a below-market price as much as 50 percent less than it would normally sell for, although a typical price is usually only 5 percent less.
In order to estimate a potential discount that you can get on a foreclosed house, you have to know its market value as well as the amount of any loans or liens that the property may have against it, as this will give you an idea of how much the bank will make or lose by selling the property.
The discount means built-in equity, but also it should help make up for any repairs and maintenance that may need to be done if the house has been vacant for a while or otherwise not properly maintained.
“Consumers have the ability to negotiate repairs even if they agreed to buy the property ‘as is, When REO brokers post ‘no repairs,’ including no water heater strapping or smoke detectors,” they could be in violation of the law.
“Some banks are willing to shell out thousands of dollars to make repairs to help get a home sold, “The agent listing a bank-owned home isn’t likely to fight for these repairs for you, so consider having your own skilled buyer’s agent represent you.”
Make sure that your real estate agent is skilled with the REO foreclosure process. A way to find out is to ask agents how many successful offers they have written for foreclosures, but don’t take their word for it, “Ask for a list of past transactions that they have completed, otherwise you could waste months of your time waiting to hear if your offer was accepted, only to find out that the agent didn’t submit the proper documentation to the bank.”
Financing a foreclosure
“Many popular loans first-time buyers use, like FHA loans, can’t be used because they require the home to be in a certain condition.
“Fannie Mae offers certain streamlined mortgage options, often requiring lower down payments and even waiving the need for an appraisal. Find a local mortgage expert who is approved to offer products like Fannie Mae’s “Homepath.” A good mortgage broker, in conjunction with your agent, should be able to help point you to down-payment assistance programs and city or county loan programs for rehabbing fixer-uppers.