Prospective homeowners who are looking for foreclosure values are surrounded by misinformation and myths which delay or even abort the purchase process. Let us help you dispel those myths.
1. MYTH: Foreclosures sell at 50% or less of the listed price.
REALITY: Foreclosures have already been listed at an average of 20% off market value. That is the loss that the bank is usually willing to absorb. Banks can and do negotiate, but they have a bottom dollar figure for loss, and they do not typically sell beneath it. Foreclosure sales for the past year support this fact. (Even with foreclosures factored in, the Sales Price to List Price ratio in all of central Minnesota in 2008 never fell below 95%.)
2. MYTH: There are exceptions to the bank-generated AS IS Addendum.
REALITY: Once the bank AS IS addendum is signed by the buyer and seller (the bank), the addendum is binding in all aspects: condition of the home, title and closing issues, even the closing date. Any negotiation of this addendum must be done prior to the Purchase Agreement being fully executed. Once signed, it is legally binding.
3. MYTH: There is no real detriment to the buyer if the bank “requires” the buyer to close at its designated title company.
REALITY: The bank wants all buyers to close at its designated title company for a reason: it saves the bank costs and protects the bank’s interests. What it often does not do is protect the buyer, particularly in the area of owner’s title insurance. All title insurance premiums are limited in some regard when dealing with a foreclosed property, but they are not all created equally. Unsuspecting buyers could “inherit” assessments, liens, and fees under the bank’s title policy. Buyers should always insist on a 2006 ALTA title policy and know that they have gap coverage. Be advised: it is against Minnesota State Statute to dictate where buyers obtain their loan or close their transaction. In an attempt to force buyers to use its designated title company, a bank may draft addenda which actually violate federal RESPA regulations. Buyers must know their rights and exercise them.
4 MYTH: Any REALTOR can effectively negotiate a foreclosure.
REALITY: Any licensed REALTOR can legally negotiate a foreclosure, but not all REALTORS have expertise in the foreclosure market. Because foreclosure is a specialized niche of the real estate arena, it is essential for buyers to choose a REALTOR who understands the foreclosure market and the additional legal documents required, as well as who has skill in negotiating with banks. For example, if a REALTOR tells buyers that they must close with the bank’s title company because the bank addendum says so, (see above) that REALTOR has provided misinformation and a disservice to the buyers. Be advised to choose a REALTOR who is an expert in this field.
5. MYTH: There is not a lot that buyers can do to prepare for success in a foreclosure negotiation.
REALITY: Buyers can position themselves to be successful in negotiating on a foreclosed property, and a good REALTOR can coach them to a happy ending in the purchasing process. Buyers need to write an offer that will be noticed in terms of price, closing date, and terms. They need to be pre-approved by a reputable bank and have that documentation in hand. They also need to be flexible in the time-line for closing.
6. MYTH: Buying a Foreclosure is much like buying any other property.
REALITY: Buying a foreclosure entails much more risk for buyers than buying a “healthy” home. Buyers must understand that they willingly forgo many of the rights that are guaranteed to them when purchasing an individual seller’s home. They must accept the property “as is” in terms of condition. They will have limited insurance in terms of title defects. They may incur unrecoverable costs along the way. These risks are the exchange that is made for the value they receive in the discounted purchase price.
Understand the reality of purchasing a foreclosed home and prepare for a successful transaction. Then you will be a happy homeowner!
The Tami and Steve Team is expert at negotiating foreclosed properties. Let us guide you to a new home today.
by Tami DeLand
