A guide to negotiating the best offer on a foreclosure or pre foreclosure
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A Guide to
Best Offer on a
Public Auction………………….. 3
Contact Info………………………. 5
Just because you’re not an expert doesn’t mean
you should be too intimidated about making an
offer on a foreclosure. You don’t have to start with
offering more than you ideally want to pay
because you think your offer will be too low. If
you’ve researched similar foreclosed houses and
adjusted your offer for any liens or repairs needed
on the home, your offer should be fair.
Remember that your negotiation dealings will
vary depending on which stage of the foreclosure
process the property is in. You’ll either be making
an offer to the homeowner, a third party seller,
trustee or the lender who financed the home. This
guide will take you through the process of
negotiating offers during the pre-foreclosure,
public auction and REO stages of foreclosure.
[Volume 1, Issue 1]
The homeowner may arrange with the lender to sell the
home as a short sale to pay back their default and avoid a
foreclosure. You’ll be dealing mostly with the homeowner in
this stage, but any offers you make must be approved by the
lender. If a trustee or attorney is involved, you’ll have to
contact them as well. To start the process of negotiating an
offer on a short sale:
Contact the trustee or attorney: The homeowner may have months after the
Notice Of Default (NOD) or Lis Pendens (LIS) is issued to pay back their default or
sell their home in a short sale. The trustee or attorney will be able to tell you if the
property is still facing foreclosure. There’s no use wasting time trying to make an
offer on a home that is no longer available.
Contact the homeowner: If the homeowner has not already listed their home as a
short sale, you may want to send them a postcard expressing your interest in the
property. Remember to be sensitive to the homeowner’s situation; try to avoid
mentioning foreclosure in the postcard. You may want to hire a real estate agent if
you’d prefer to contact the owner more directly.
Negotiate your price: If the homeowner is interested in selling their home to you as
a short sale, it’s time to negotiate payment. Obtain a title search and hire a contractor
and/or appraiser to look over the home if you can. If the homeowner cannot afford to
pay off liens on the home or make any repairs before the sale, subtract these costs
from your offer.
Offer to help the seller: There has likely been some difficulties and hardships that
led to the homeowner defaulting on their loan. The homeowner may be more
receptive if you can let them continue living in the home as a renter for the first
couple of months after the sale. You can also offer to pay housing costs for the first
couple of months after the owner finds a new home.
At this stage in the foreclosure process, the trustee has been
authorized by a judge or the lender to issue a notice of sale
and allow the home to sell at auction. Foreclosure auctions
happen quickly and can be overwhelming if you are not
prepared. To get the best bargain on a foreclosed home:
Witness the auction process: You may want
to attend some foreclosure auctions as a
spectator to get an idea of what they can be
like. Be sure to especially take note of similar
foreclosures and what people are bidding for
them. This can help you form an idea of how
much you should offer.
Contact the seller named in the listing: The
homeowner may have up to five business days
before the foreclosure sale to pay off their
default. Foreclosure auctions can also be
postponed or terminated in short notice. You’ll
need to speak to the attorney or trustee to find
out if the listing is still current. Ask as much as
you can about the property during this time.
Research the property: Ideally you’ll want to
run a title search to find any liens or debts on
the property and hire professionals to give you
their estimate. However, because foreclosure
auctions can be very fast-paced, you may not
have time to do this before the sale. Find out as
much as you can about the property and keep it
in mind when making your bid.
Have your maximum bid pre-set: It’s easy to get caught up in fast-paced auctions
and make bids for more than you want on home foreclosures. Use your comparative
figures from similar foreclosure properties, other foreclosure auctions, and repair
and debt estimates. If someone outbids your maximum offer, don’t outbid them in
your frustration. You’ll know it’s not worth it.
At this stage, the foreclosed property has
likely already been through a public auction
where it failed to sell. A short sale is no longer
possible at this stage as the home is now in
ownership of the lender who financed the
defaulted loan. If the lender is a large bank
with a dedicated REO department, they may
sell the property themselves. To make an
offer on an REO:
Contact the lender: If you don’t have access to the REO listing, you can find out
the name and address of the bank in ownership of the property through the local
property accessor. You may have to make a direct request to the bank to be able
to see their REO listings.
Hire a real estate agent: While this is not absolutely necessary, banks and
lenders are less willing to cooperate with inexperienced buyers. Even if this is not
the first time you’ve purchased a foreclosed home, having a real estate agent
represent you can increase your chances.
Inspect the home: As with the pre-foreclosure and public auction stages in the
foreclosure process, you’ll want to know the title condition and have the property
professionally appraised. You’ll want to take the cost of any debts or repairs into
consideration when making your offer and subtract them from the total.
Make your offer: Making an offer on an REO is similar to making an offer on a
short sale. The difference is the homeowner isn’t involved. It’s easy to think that
getting a good deal is impossible without a stressed and desperate homeowner
hoping to be cut a break. However banks make no money form having homes in
their possession, so they want to unload them quickly.
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Remember that research is the most important factor to
getting a good bargain on a foreclosed property. Since
sales can happen quickly it may not always be possible
to obtain all the information you want, but you should
at least research prices from similar sales. If you can’t
run a title search or have the property inspected, set
aside funds for potential debts and repairs.
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