THAT THEY ARE "CRACKED UP" TO BE?

By:  Brian Patrick, Broker

May 25, 2009

Everyone knows someone who knows someone that bought a foreclosed house for thousands below market.  Usually the story goes that the lucky buyer found the home grossly underpriced and bought it when the property only needed some minor repairs.  The end result was a happy story of tens of thousands of dollars of fresh equity...in an easy and instant wealth building transaction.

The truth is, most foreclosures will fall into three distinct groups of properties: 1.) Very distressed properties needing extensive repairs to structure and foundation due to years of neglect, 2.) moderately distressed properties needing renovations such as paint, carpet and other flooring; and 3.) properties that are relatively new, have been maintained, and are priced well below the appraised value on the most recent tax role.  After years of searching area foreclosed homes, I can truthfully say that most foreclosed homes fall into the first two categories. 

Expect to spend an undetermined amount of money to repair those properties that are severely distressed or moderate amounts of money on those needing only renovations.  The last category of homes is most difficult to find, and the timing is more critical than ever in making an offer.  There are many home buyers and investors seeking homes that are undervalued yet will not require much to bring back to value.  Timing is important because with good values and conditions, there are competing offers just days after the listing opens on the market.  In this case, your Realtor's advise on the amount of the offer should be followed, even if the offer is above the list price on the MLS.  Different institutional owners selling REO (Real Estate Owned) properties have different policies, so your Realtor should be familiar with each type of property (HUD, Bank-Owned or FANNIE MAE).

Your Realtor is also invaluable in finding these properties for you just as they enter the market so that you have an opportunity to make an offer.  Changes in the MLS rules late last year restricted the use of pre-foreclosure or foreclosure nomenclature in the description of properties, so the general public no longer has access to this information.  A Realtor, however, can establish an MLS automatic search for foreclosure properties based on the "private remarks" section of the property listing.  When new properties enter the market, the Realtors and their clients see these homes immediately.

If you have any questions, please feel free to contact me by email or telephone.