Buying Foreclosure Real Estate (Bank Owned Homes)

In Fresno, Clovis, Madera, Sanger, Reedley, Kingsburg, CA

 

Definitions

Foreclosure Statistics

Foreclosure Buying Advantages

Foreclosure Buying Disadvantages

How to Buy a Foreclosure

  

Definitions:

  • Short Sale: Short Sales occur when a seller is in pre-foreclosure (missing payments) and places their home on the market.  Their real estate agent operates as a negotiator on the seller's behalf with the lender.  A buyer is found to purchase the property (at less than what the current owner owes) and the lender agrees to accept a discounted payoff.  The seller's debt is forgiven, but their credit is impacted.  Short sales typically cost sellers nothing, but they also make nothing on the sale.
  • Foreclosure: Often referred to as an REO (Real Estate Owned), this status indicates the property is now owned by the lender or bank as a result of a foreclosure. The original borrower is not involved in the transaction.


Fresno, Clovis and Madera California Foreclosure Statistics:

  • 51% of residential homes sold in the Fresno County and Madera County MLS real estate system were foreclosures during October 2009.
  • 83% of October 2009 foreclosure sales were houses sold under $200,000.
  • Foreclosures typically sell within 2% of listing price in the Fresno County and Madera County MLS real estate market.
  • In most cases, foreclosed homes in the Fresno County and Madera County area priced below $200,000 will receive multiple offers.
  • Foreclosures are typically priced 10% - 15% below current market value.

April 2009 Fresno and Madera County Foreclosure Statistics:

Nearly 40% of foreclosures listings sold within the first 30 days and of those homes the average selling price is slightly higher (100.03%) than the listing price.  

 

0-30 Days 31-60 Days 61-90 Days 91-120 Days 120+ Days
No. of Listings 275 125 101 70 119
Breakdown % 39.86 18.12 14.64 10.14 17.25

Avg Selling Price

vs. % Listing Price

 100.03 98.55 95.96 94.12 94.07

November 2009 Fresno and Madera County Foreclosure Statistics:

Nearly 63% of foreclosures listings sold within the first 30 days and of those homes the average selling price is slightly higher (102.62%) than the listing price.

 

0-30 Days 31-60 Days 61-90 Days 91-120 Days 120+ Days
No. of Listings 289 107 28 21 15
Breakdown % 62.83 18.12 14.64 10.14 17.25

Avg Selling Price

vs. % Listing Price

 100.03 98.55 95.96 94.12 94.07

 

 

Advantages to Buying a Foreclosure:

  1. Price – The primary reason for buying a foreclosure is the reduced price of the home. Foreclosures are typically 10-15% below current market value. In today’s market, buyers have the opportunity to buy homes at extremely low prices if they accept the risks listed above.
  2. Less Delays than Short Sales – While there still can be frustrating delays in foreclosures, there are typically more with short sales.

 

Disadvantages to Buying a Foreclosure:

  1. Multiple Offers: Due to the competitive pricing of foreclosure properties there are often multiple offers placed on a home with which buyers will need to compete. This is particularly true for home priced under $150,000 in the Fresno County real estate market. The selling price of a foreclosure may consequently exceed the listing price.
  2. No Contingent Properties: Banks will not accept offers from buyers that need to sell their own home first. It is viewed as too high of a risk for costly delays in the escrow process.
  3. Delays in Response: Due to volume of foreclosures nationwide, there can be a frustrating delay in responses from the respective banks regarding the status of a buyer’s offer. Buyer’s can wait a number of weeks prior to learning whether their offer is accepted. However, this response is markedly shorter (in most cases) than for a short sale.
  4. Lack of Disclosures: When buying a foreclosed home, the bank does not provide disclosures on the home. There could be, for example, water drainage issues, mold or roof damage that the buyer may not be informed of. Buyers can pay for their own inspections of the property prior to purchasing, if desired. But, there may be pre-existing conditions that may not be discovered in a routine inspection.
  5. Purchased As Is Condition: In almost all cases a bank will not agree to pay for pest certifications, roof inspections, or repairs to a home. These are all the responsibility of the buyer. In addition, a foreclosure has often been vacant for a minimum of 6 months and there can be significant costs involved in preparing the property for move-in condition.

 

How to Buy a Foreclosure:

  1. Sell Your Current Home – If you need to sell your current home to buy a new one that needs to be done prior to making an offer on a short sale or foreclosure. Banks will not accept your offer if you need to sell a home first.
  2. Investors - Save for Down Payment - Typically for investment properties, lenders are now requiring a 20% down payment.  For those interested in the scheduled auctions of homes (on courthouse steps, for example), banks typically only accept all-cash purchases.
  3. Get Pre-Qualified – Banks require a pre-qualification letter to accompany any offer submitted on a foreclosed property.  Sometimes a bank will require prequalification from a specific lender.
  4. Contact a Real Estate Agent – Due to the demand of foreclosed homes, speed and accuracy are critical aspects of successfully buying a foreclosure. An experienced foreclosure agent that is an expert on the market and area is a key part of ensuring that a buyer has the opportunity to buy a home.
  5. Make an Offer – Typically a standard purchase contract and pre-qualification letter are used to present an offer on a foreclosure. There may be additional documentation required by the bank, however, that will be needed prior to being considered.
  6. Lender Accepts or Rejects Offer - Prior to this stage it is strongly advised for a buyer to not spend any out of pocket expenses on the home for items such as pest inspections. A lender has the right to reject an offer at any time and buyers should be cautious of committing any finances prior to written confirmation of acceptance. At this point, a typical escrow can proceed based upon the conditions set forth by the lender.

Foreclosures are an excellent buying opportunity if you are informed of the risks and benefits.

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