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Before You Buy a Foreclosure Property, Do Your Homework!

Before You Buy a Foreclosure Property, Do Your Homework!

By Rick Sharga, Vice President of Marketing for RealtyTrac

There are two words that give pause to the most motivated foreclosure buyer: due diligence.

Those words mean researching all the risks involved in a property purchase, which in the past meant extensive legwork and expense. But that’s no longer the case, thanks to exponential advances in information technology and the establishment of Web-based property data aggregators like RealtyTrac.

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Don’t be fooled – buying a foreclosure property doesn’t equate to easy money by any means. A savvy player in this market is willing to do a bit of homework. But the tools and resources needed to do that homework are much more accessible now than ever before.

“While buying a foreclosure property is certainly not without risk, the right examination and due diligence on the part of buyers can significantly improve their ability to make a strong investment,” explains James J. Saccacio, chief executive officer at RealtyTrac, the leading online foreclosure marketplace.

Web-based services like RealtyTrac can help investors and homebuyers tap into the previously hidden foreclosure market by providing access to property data formerly available only to professional real estate brokers and investors. Today, homebuyers 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.

It makes sense to give any foreclosure property under consideration a thorough examination – possibly even more thorough than for a traditional real estate property. There are three stages of foreclosure that require different research strategies: pre-foreclosure, auction and bank owned.

Before buying a pre-foreclosure property directly from the owner, run a preliminary title check for all debts secured by the property. You can research the title online using RealtyTrac’s Legal and Vesting Report or Transaction History Report. Subtract the total amount owed from the estimated market value to determine the potential bargain. After making contact with the owner, arrange a walk-through of the property to evaluate its condition. Factor estimated repair costs into your purchase offer. Before you close the deal, hire a professional home inspector to inspect the property and enlist a title company to run a final title check.

In most states, you don’t have a chance to inspect a property before buying at a public auction, which makes this type of purchase more risky. But if you’ve researched the title and determined the amount owed is far less than the market value, you’ll have some margin to cover unexpected repair costs. Before you go to the auction, set a maximum bid based on your research and stick to that bid at the auction.

Although you’ll be able to inspect the property if it’s bank owned, the bank typically knows little about the property and will sell it in “as is” condition. This means the bank will disclose all the needed repairs it knows about, but is not held responsible after the sale for any repairs it did not know about. Factor the known repairs into your purchase offer and have a professional inspection conducted before closing the deal. You should also have a title company run a final title check before closing, although most banks will make sure the title is clear before selling.

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