By Rick Sharga, RealtyTrac Vice President of Marketing
Understand foreclosure investing before parting with your hard earned money. Buying foreclosure properties can be one of the best investments out there, as it is less expensive for home buyers and real estate bargain hunters to purchase houses in a high price market. However,before taking the plunge,you do need to understand the workings of the foreclosure process,in order to benefit from foreclosure investing.
For people willing to do some homework,the foreclosure market offers some of the best opportunities in real estate today," explains James J. Saccacio,chief executive officer at RealtyTrac, the leading online foreclosure marketplace.
Web-based services like RealtyTrac can help investors and home buyers tap into this previously hidden market by providing access to foreclosure and pre-foreclosure information typically available only to professional real estate brokers and investors. Today,home buyers can use these services to identify and research potential home purchases, as well as to find the tools and professional resources they need to help them close the deal.
When offering advice to buyers interested in taking advantage of the foreclosures market, Saccacio stresses the importance of educating oneself about the types of properties and the processes involved. Even seasoned real estate investors have something to learn when it comes to approaching this market. It’s important to go in with the appropriate knowledge.
Types of Properties Available at Various Stages of the Process
Serious buyers must first understand the difference between the varying types of foreclosure properties. It’s important to review the basic types of properties,each representing a different stage in the foreclosure process.
A property enters pre-foreclosure after a default notice is filed by the foreclosing lender against the borrower who owns the property. The different notices that are filed during pre-foreclosure include Notice of Default (NOD),Lis Pendens (LIS), Notice of Trustee Sale (NTS) and Notice of Foreclosure Sale (NFS). For most consumers,buying a pre-foreclosure property from a private homeowner is the most favorable of options. This is a best-case scenario because the seller is able to get out from under a mortgage without destroying his or her credit rating, the lender is saved the time and expense of foreclosing on the property,and the buyer gets a below-market price on a home. In addition,buying at this stage of the process allows you, the buyer, a chance to fully evaluate the property before making an offer.
The disadvantages associated with purchasing a property during the pre-foreclosure stage are few, but worth mentioning. As with any major purchase,negotiations between the buyer and seller can be difficult,especially since the seller would typically prefer not to have to sell the property in the first place. Secondly, transactions are time-sensitive, since there is pressure to complete a sale before the property goes to auction.
Foreclosure auction sales are typically the domain of the professional investor. These properties are formally in default, and sold to the highest bidder at an auction. Buyers are required to be physically present at the auction and must be prepared to pay 100 percent of the sale price in cash on the spot.
Though foreclosure auctions can offer significant savings as well as immediate property ownership, they are not for the faint of heart or the uninformed! Unless the buyer is already familiar with a particular property,there is usually little time to examine it. And, the buyer will be competing against professional investors and sometimes even the lenders at the auction.
Once the lender officially reclaims a home, it is classified as Real Estate Owned by the lender (REO). While REO properties typically offer more time for evaluation and a more standard bank-managed transaction, their prices are usually very close to full retail market value. Therefore, they offer buyers the lowest potential savings.
It’s definitely possible to find great deals in the foreclosures market. You just need to know where to look and be able to differentiate exactly what you’re looking at. With an understanding of the pros and cons of buying at each stage of the process, you’ll be well on your way to a successful purchase of foreclosure properties you can be proud of.