This article contains excerpts from my column in the August edition of the Economic Journal of Mohave County.
Foreclosures have been the game changer in real estate markets across the country for buyers and sellers alike.
We’ve covered the seller side of the foreclosure game, so now let’s turn the table and look at it from the buyer’s end.
Five facts that every buyer ought to know about foreclosures:
1. Foreclosure or just a good deal?
This is rule #1 for buyers. “I’m looking for a foreclosure” is usually code for “I’m looking for a good deal.” Before limiting your search to foreclosures, consider opening it up to all homes that meet your needs.
Unless you’re going for an incentive program such as Your Way Home AZ, you just might find that great deal without having to deal with a bank seller. On top of saving some hassle on your end, you’ll help save an actual human who needs to sell. That’s a win-win.
2. Human sellers are easier to work with than banks
Know someone who has recently bought a bank owned home? Ask them about the multi-page addendum(s) they signed, agreeing to everything from buying as-is, to $100-a-day penalties for late closing.
As alluded to above, you should definitely expect some hassle when buying from a bank, so be prepared. It’s a risk-reward thing.
3. Foreclosure competition is stiff for buyers, too
Just like human sellers are competing with banks to sell, buyers are competing with other buyers to buy foreclosures. This can lead to multiple offers on the same property, bidding wars, or otherwise missing out one or more houses. This process is now very common and can become frustrating fast, but it’s part of the foreclosure game.
4. It’s not about the asking price
Talk to your agent about playing the foreclosure game. If you’re in a market where multiple offers on foreclosures are the norm, it makes sense to have a strategy that puts you out in front of competing bidders when making an offer.
People tend to focus too much on the asking price. Many buyers take it a step further and go for asking-price-minus-x, subtracting a few thousand from the asking price. Who wants to pay full price?
Trouble is lots of people lose out on their first choice by trying to “save” a few bucks while someone else swoops in and makes a better offer.
It’s not abut the asking price, it’s about how much the place is worth. More specifically, it’s about how much it’s worth to you.
5. Foreclosure incentives
Like it or hate it, at this point it appears our government has abandoned free market, hand-off philosophies entirely (remember “laissez-faire“?).
So let’s sidestep the philosophical debate, and understand there is serious free money up for grabs (while supplies last). Case in point:
Your Way Home AZ
The Arizona Department of Housing will pony up a whopping 22% of the purchase price for qualified buyers of foreclosure properties. The program is called Your Way Home AZ .
Here’s how it works:
You get 22% of the purchase price for buying a foreclosed home. It comes in the form of a silent, forgivable second loan with no payments and no interest EVER.
If you occupy the home for the required amount of time (5-15 years, depending on the amount), you don’t have to pay it back. It’s free money. If you don’t occupy the home long enough to meet the requirement you will have to pay it back, but you still made no payments and you owe no interest. Amazing.
The Foreclosure Reality
While the presence of foreclosures in the market has been disruptive and changed the game, those foreclosures have also been a catalyst to get the market moving again. Affordability has stirred up demand, clearing out much of the bloated inventory that built up while human sellers were holding out for more money.
As long as foreclosures continue to move through the market, overall demand increases and supply decreases. That is the path to a balanced market, which is the best news of all.
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Very informative post especially for buyers who are until now undecisive or wondering what a best deal for purchasing a home should be.