What to Consider When Preparing a Bid for a Foreclosure
Foreclosures offer great opportunities for those who are interested in buying and/or investing in real estate. If you have the time to do a little homework and pick through the various foreclosure listings currently on the market, you will probably be pleasantly surprised at the number of foreclosure properties that meet your specific needs.
Once you have completed your research and narrowed your foreclosure list down to a few possibilities, the next step is to determine how much you should offer for each foreclosure. Coming up with a bid amount will depend largely on several factors including:
Property Value
It is important to look at the original purchase price of the property, as well as how it stacks up to comparable properties in the area. Also, review recent sales in the neighborhood to better determine the current value of the foreclosure property.
Loan Amount
Another important piece of information you need to determine, particularly relevant if you are hoping to buy the property in a pre-foreclosure stage, is the total amount due as well as the remaining loan balance on the property. At a minimum, you are going to have to find out exactly how much is needed to settle the debt owed to the lender.
Performing an Inspection
While not always possible -- depending on at what stage of the foreclosure process you purchase the property -- it is highly recommended that you try and schedule a thorough inspection of the property prior to submitting an offer. Inspections allow you to assess the current condition of a property, and determine how much you may need to budget to perform repairs and improvements. This generally has a major impact on a buyer’s budget, and is also one area that is often either miscalculated or under-estimated. Be sure that you have a solid handle on the amount of money it will take to bring the property up to your standards either for occupying or reselling.
If possible, consider bringing a realtor along with you on your inspection of the property. They may be able to provide suggestions on what types of repairs and improvements would offer the most return on your investment.
Title Search
If you purchase a bank foreclosure a title search will not be an issue, as most bank foreclosures will ensure that the title to the property is free and clear of any and all liens and liabilities prior to selling it to you. However, if you purchase a pre-foreclosure or a foreclosure at auction, it is important that you thoroughly research the property. This is also commonly known as a title search. Make sure that the property is free and clear of any bankruptcies, tax liens and other financial liabilities that can potentially cloud ownership to the property. All liens, liabilities and loans would need to be addressed before the property is sold, either by the current owner or by the buyer before title to the property could pass unencumbered.
You can do this yourself by performing a thorough search of property records at the County Recorders Office or you can hire a title company to handle the task for you. The bonus to having a title company perform the search is that they often provide title insurance with their search, which helps to defend you if a lawsuit is filed against the title.
Realistic Offer
Regardless if you are dealing directly with a seller in pre-foreclosure, bidding at a foreclosure auction or making an offer on an REO (real estate owned) or bank foreclosure, you need to make a realistic offer on the property. All too often, new investors interested in buying foreclosures enter the process with the misperception that the seller or bank is desperate to sell the property and would consider taking pennies on the dollar to do so. While it is true that you can often find foreclosure deals ranging anywhere from 5 to 25 percent off market value, deeper discounts are few and far between.
Additionally, depending on the local real estate market, you may find that you are not the only party bidding on a foreclosure. You may only have one opportunity to make an offer on the property, make sure that your bid is not only realistic and reasonable, but also grounded in solid research and facts.