According to MSNBC News on Sunday, July 27, 2008, “The number of households facing the foreclosure process more than doubled in the second quarter compared to a year ago.”
Statistics and statements like this one are broadcast by the media every day. Ironically, they seem to suggest to potential home buyers that foreclosure properties must be a good deal. In fact, quite a few of the people who contact us everyday to help them in their home search often introduce themselves to us by stating that they only want to look at foreclosure properties because they want a bargain.
The fact is properties that have been foreclosed on are very often not bargains at all and here’s why. The lender wants to recoup the amount of money that was borrowed. If the loan was made only a few years ago and if the amount of money borrowed was for 100% or nearly 100% of the purchase price, the lender needs to sell the house for full market value in order to recover the entire amount of the loan. Since property values have not risen greatly within the last few years meaning that the home has not built equity in that way, the lender needs to sell the house at the retail price. Furthermore, if the borrower was late on payments, the lender will also try to recover the late fees in addition to the loan amount through the sale of the home.
More often, bargains can be found through short sale situations. A short sale occurs before a house is foreclosed on and results from the borrower making an agreement with the lender allowing the house to be sold for price that is less than the amount of the loan. The difference between the sale price and the loan amount is not forgiven, but a short sale does not ruin the seller’s credit like a foreclosure.
The buyer of a foreclosure or short sale property cannot have the sale contingent upon the sale and/or settlement of another home, and a buyer can have a home inspection for informational purposes only, meaning he cannot request that repairs be made to the property. Additionally, a buyer of one of these types of properties will usually have to exercise extreme patience because review of the contract and approval of the sale by the lender can take a long time (this is what is meant by “third party approval” in a listing’s description).
If you’re looking for a deal on a home, take a look at our Best Buys page. Each week, we post good short sale opportunities or deals on “normal” sales, so check it out.
Wishing you peace, love, and the home of your dreams,
Jeri
