Should I Buy a Foreclosure?
Once upon a time, I would meet a new buyer client and when I asked them what they wanted in a home, they would say something like, “3 bedrooms, 2 baths, a 2 car garage,” and so forth. That has totally changed. More often than not, these days, my homebuyers say something to the effect that, “I want to buy a foreclosure.” As I did with the home-obsessed buyers of a few years ago, my first task with today’s foreclosure-fascinated folks is to drill down into the desire to buy a foreclosure and get clear on what lies beneath, so they can have a drama-free (well, less dramatic, anyway) experience of buying and owning their home.
The Client. So when a new client recently insisted that he absolutely only wanted to see bank-owned homes because he didn’t want to pay “retail,” I was anxious to expand his realm of prospective properties by jumping right into this issue. I asked what he was really looking for, a foreclosure or a great value for his money? He was crystal clear that he really wanted to feel that he was getting maximum bang for his homebuying buck -- that was the whole point of buying now.
First off, I said, there’s nothing inherent about a foreclosure that means that it’s a steal or otherwise more desirable than a non-foreclosure. Banks are just as likely to price their properties unrealistically as individual sellers, and individuals can be easier to negotiate with. Now, most of the homes on the market in your price range are bank-owned homes, so we do need to be prepared for what those transactions will look like and for you to be attractive (as a buyer) to a bank-seller! But some are and some aren't good deals -- it just depends on the particular property.
The Workaround. So I started briefing him on what to expect if he went the foreclosure route, which -- don’t get me wrong -- about 85 percent of my current clients do, just because that’s what is on the market. I coached him to not be outraged if he encountered multiple offers, long delays in responses from the bank, and a somewhat rocky escrow because the bank insisted on using their own escrow company, rather than one I could hold accountable. He said, “But I thought the banks were dying to get these homes off their books?”
My response? Rule No. 1 of buying a home from the bank is to stop thinking of the bank as a logical individual. It is an institution, so every decision goes through an inefficient bureaucracy and involves people whose motivations are not as logical or obvious as with an individual seller. These deals can be done, but if you go in expecting some drama, you can change the genre from a tragedy to a comedy!
I went on to tell him that, IMHO, one of the most under-discussed impacts of the flood of foreclosed homes onto the market is that it has put intense price pressure on the individual sellers whose homes have to compete with all those foreclosures! While a bank will only sell on an as-is basis, individuals may do repairs. While many of the bank-owned homes in his price range are in sub-par condition, lots of the individual sellers have spruced and staged their homes to the nines, to get them sold.
So stay open, I asked him, to both foreclosures and individually-owned homes. Let’s get clear on what you want for your life and from your home, and what your budget parameters are. Then, let me show you all sorts of homes that might fit those criteria. I’d hate for you to miss out on great properties just because some of them are owned by individuals instead of banks.
The Result. He agreed, and in one fell swoop, the entire world of listings became his oyster.