Buying Foreclosures and Short Sale Homes

With the current economic conditions the number of foreclosures and short sale properties on the market is significant, making it an ongoing issue for many REALTORS® who may not be as experienced with the process and have the unenviable task of clearing these sales as efficiently as possible.

The federal government is trying to help the situation with the $25 billion National Mortgage Settlement designed to provide eligible homeowners with relief as well as implementing across-the-board servicing standards meant to improve borrower communication and servicing consistency. (For more information read: National Mortgage Settlement and REALTORS®: 5 Quick Takeaways.)

The challenges of buying foreclosures and short sales are numerous. Unresponsive lenders, lost documents that require multiple submissions, inaccurate or unrealistic home value assessments and long processing delays can cause buyers to walk away. The NATIONAL ASSOCIATION OF REALTORS® offers Short Sale and Foreclosure Resource (SFR®) certification to provide professionals and clients with the training to manage these tricky transactions.

Here’s a list of tips to help REALTORS® navigate the space and offer the best possible services to their clients.

7 Tips When Buying Foreclosures and Short Sale Homes

Patience is a Virtue

Agents and sellers tend to establish a low asking price to attract buyers. Banks can be unaware of the asking price and since they have the last word on whether to accept or reject offers, and since properties with low initial asking prices can spark feeding frenzies, buyers need to remain patient throughout the process, which can take months.

Don’t Get Caught in a Bidding War
Some foreclosures and short sales are put on the market at cut-rate prices to avoid expenses like property taxes, insurance, upkeep and utilities. Lowball prices attract dozens of buyers who can bid the property from a bargain to overpriced in short order. Help your clients calculate how much they want to spend and don’t exceed that price.

Know Your Market and Demographics
To help determine an appropriate valuation and asking price, be sure to research recent home sales in the area to give buyers a better idea of what properties are selling for. Consult the Realtors Property Resource for current and historical information, including the largest database of foreclosure information by county in the industry.

Know What the Bank Wants
Some banks want strong buyers and some want strong offers. Build a relationship with lenders directly by getting to know asset managers at banks. Some banks prefer large down payments, some want the highest price and there’s always the possibility for deeper discounts with all-cash offers.

Don’t Count on Repairs
Keep your clients’ expectations in check – the reality of the situation is that home repairs on short sales and foreclosures are seldom completed. The good news is that buyers willing to absorb repair costs are usually more attractive to banks.

Tour the Property
Foreclosed and short sale properties can be in deficient shape, making it important to tour the property with a qualified contractor to spot major problems and add repairs to the overall budget. Some issues can be minor, but others can be deal breakers. Help your buyers know what they’re getting themselves into.

Get Your Paperwork in Order for Short Sales
In short sales, there’s no leniency with the closing escrow date. Take care of all loan paperwork immediately after opening escrow and be prepared a few days before the closing date. Then, if unexpected delays occur, a request for an extension can be made early enough for banks to consider them.

What are some of the biggest challenges you’ve faced helping buyers with foreclosures or short sales? Share your comments below.

  1. Anthony

    The reduction of commissions, I’ve been working on Short Sale for over a year, where I’m representing the seller & buyer, I finally rec’d the approval letter a few days ago from OWB and they offered only 3% commission and reduced the payoff to the 2nd lien holder by $3500. Its a non gov’t loan,what’s my recourse? Give up a years work, disappoint my clients, I’m cornered.

  2. I took my SFR course somewhere around 2009 or 2010. The times and games have changed drastically. Is there other designations or an updated SFR course that would help the Realtor navigate these troubled waters?

  3. Don’t Count on Repairs and Tour the Property are really 2 IMPORTANT point.

    Make sure you get a good home inspector involve in the process. You can also consider hiring a Restoration/Remodeling to go take a look and asset the situation. They should provide you with Free Estimates and recommendation.
    At Final Touch Restoration Inc., we do provide Free Estimates and try to help the interested buyer to make the best decision. You do not want to buy a house that would be like opening a can of worms.

  4. I had a banker tell me today that they are taking a loss, everyone else is taking a loss. I simply said. We did not default on the payments and get you in this situation; and, we did not receive a bail out from the government.

    They laughed and paid me the % that I requested.

  5. Barbara

    In Ohio the foreclosure property procedures are completely different than short sales.
    In foreclosure listings the Sellers/banks want these to be completed quickly. They answer contracts in short time, often in hours. They want all documents and addendum’s to be returned with in 48 hours or less. Buyers are not given the ability to do home inspections prior to contract ratification.
    You wrote
    “Some banks want strong buyers and some want strong offers. Build a relationship with lenders directly by getting to know asset managers at banks. Some banks prefer large down payments, some want the highest price and there’s always the possibility for deeper discounts with all-cash offers.”
    I have been working with the leading lenders for REO properties for 15 years and it is my experience there are absolutely no “deep or deeper discounts for cash offers.” Not in today’s world of banking when loans only take 30 days and the REOs deeds are not typically ready for 3 weeks anyway. Banks and asset managers do not build strong relationships with agents unless they are the agents who the listing agent on properties. These are agents who actually do list the bank properties. They do not get any special treatment when they bring a buyer to the table.
    All of the Banks I represent want the highest price possible and will rarely even look at offers below 10% of list price.
    To truly represent a buyer in an REO transaction, the buyer’s agents need to educate themselves completely to the process. Follow it completely and make sure they understand that the banks expect things to be done as they direct and not any other way.