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Foreclosures: When to Buy

Written by: Jennilyn Bylund
2006-08-29 15:00:00

Get-rich-quick scams seem to be a dime a dozen when it comes to the business world. Real estate ventures are no exception, although if you play your cards right there is a chance to come out on top. When considering investing in a foreclosed home, be sure you know what you are up against so you get the most for your money, and ultimately, the most for your investment.

Unfortunately, not all foreclosures are a "steal". For example, if financial institutions price a property based on the outstanding loans of a property, there is a possibility that that the price is close to the value of the property because 100 percent equity lending is available. The answer to finding a good deal lies in knowing the value of the property, subtracting necessary repairs and then comparing the asking price with the starting bid.

Another key to finding the best deal on a foreclosed home is knowing the stages of the foreclosure process and how it will affect the selling price.

Stage One: Pre-foreclosure
During the pre-foreclosure stage a home, notice-of-default or notice-of-trustee sale, buyers are in a great position to negotiate price and get a good deal. This stage creates an opportunity for the buyer, the seller and the lender to be happy. Buyer's can determine a price that is significantly less than the original property value, seller's can be saved from a bad credit experience, and the lender will be prevented from losing time and money involved in going through the entire process. Another advantage for buyers to buy during this stage is it gives them an opportunity to evaluate the property. The downside to buying in this stage of the process is some negotiations between buyers and sellers can be challenging, and there is pressure created with a time restraint to complete the transaction before auction.

Stage Two: Auction Sale
A popular stage in the foreclosure process is the auction. Auction sales on foreclosed homes still give buyer's the opportunity to save a lot of money, and you will have immediate property ownership if you win the bid. However, if you plan on finding your foreclosed home at the auction, be aware that you will be competing with processionals who are there for the investment, you won't be able to evaluate or inspect the property, and you must have 100 percent of the sale price for the home in cash. Although buying a home at an auction can be a good deal for buyers, it is important to know there are disadvantageous factors than there are during the pre-foreclosure stage.

Stage Three: Real Estate Owned
In the final stage of the foreclosure process, a foreclosed home becomes property of the lender when it does not sell at the auction. Once the home is real estate owned (REO), the bank will put efforts toward trying to sell the property on its own by removing some expenses. With REO homes, potential buyers have a significant amount of time to evaluate the home, but there is also a lower chance for potential savings on the home.

All in all, there is a lot to be said about opportunities available for buyers interested in saving money on foreclosures. It is certainly valuable for future home buyers to know the process of a foreclosure and be able to play their cards at the best time to get the best deal.

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