Foreclosure Inventory Declines, Great Deals Still Out In The Market

A lot of homebuyers perceive both foreclosed and distressed properties negatively. They think that it will give them a headache, that it requires expensive makeover, or multiple title liens.

The truth is, although distressed properties have decreased in numbers, those that are currently available can help you save a lot provided that you know what to watch out for when shopping for such type of properties.

According to RealtyTrac, Mecklenburg County continues to have excellent deals for all sharp buyers out there. Properties either bank-owned or actively in foreclosure, have a median sales price of $98,200 for the month of August. This is half the median sales price of non-distressed properties within the county, which were sold at $195,000.

However, you want to enjoy such discounted prices, you have it find it. According to the Charlotte Regional Realtor Association, both foreclosed and short sale properties comprised 5.3 percent of the closed sales last September down from 9.4 percent a year ago. On the other hand, distressed properties accounted for 15.3 percent of the closed sales in September 2012, down from 20.9 percent in September 2011.

List of foreclosed properties dropped

Local realtors gave some reasons why foreclosure inventory has fallen aside from the recovering economy.

According to Todd Lynch, broker and owner of Lynch Realty based in Charlotte, banks are holding onto their distressed properties because they want to avoid flooding the market with such properties, as this would decrease the home prices.

However, broker-in-charge and owner of Charlotte-based Showcase Realty Nancy Braun says that there are still a lot of prospects out in the market. Real estate investment trusts that flattened the Charlotte market a few years ago have lessened their expenditure, which gave opportunities for individual investors.

“The market in Charlotte is not as frantic as it was,” Braun said. “There’s less inventory but there are still opportunities to purchase foreclosures.” Furthermore, homebuyers that purchase foreclosed properties typical save around 20 to 40 percent off the market value.

“I think the big mistake is people think they can come into this market and get a house for pennies on the dollar,” Charlotte Realtor Eric Layne said. Layne has purchased a lot of foreclosed properties and has received a distressed property expert certification from the Mingle School of Real Estate in Charlotte,

Timing is everything

Furthermore, Layne claims when buying a distressed property, correct timing is necessary to ensure you enjoy the benefits it can give you. Purchasing short sale properties is time-consuming since the negotiation and selling process will take a long time hence, the homebuyer cannot move into the property right away. Layne claims that it’ll take around six to nine months to finish the short sale process.

Another thing to keep in mind is both short sale and foreclosed properties need home inspection. “Be wary of the conditions of the home,” Lynch said. “Foreclosure means the occupying owner was in distress. That tells me they didn’t have money for maintenance.”

Rough competition in auctions

If you wish to purchase a property through an auction on the courthouse steps, you have to know that although it’s profitable, it’s an intense process. The competition can be aggressive since most of the bidders are professional real estate investors.

“I wouldn’t recommend (buying at auction) for the owner-occupant,” said Perry Butler, office manager of Concord-based Benham Real Estate Group. “You’re competing with hedge funds who can outbid with cash on hand.”

In addition to that, Braun also claims that there’s a risk of liens when buying a property as the auction since there’s no more time to inspect the house. “At an auction, you take (the property) with all the blemishes,” she said. Sometimes, you may even have to struggle evicting the present occupant.

Plus, in North Carolina, a mortgage borrower has a 10-day right of redemption after the action sale through paying what he owes to the lender along with the costs of the sale.

Purchasing from banks

The final step of the foreclosure process is purchasing a real estate owned property, which is actually less terrifying process than auctions. “It’s an easier scenario,” Braun said.

Real estate owned properties or REOs usually have clean titles and are vacant from its previous owners. Plus, the potential homebuyer is given a chance to inspect the property. However, REOs are sold in an “as is” condition, which means it’s the responsibility of the homebuyer to do any necessary repairs or renovations.

But even in such case, REOs can still be excellent deals especially for those who are willing to invest in repairs and renovations for instant appreciation of home value. Plus, Braun said that this gives buyers a chance to move right into the neighborhood they couldn’t afford.

Due diligence is the secret behind successful purchases of foreclosed properties. Therefore, Braun highly recommends asking the assistance of real estate professionals (real estate agent, lawyer and home contractor) especially those experienced in handling distressed properties. “Foreclosures are a different animal,” she said.

Lynch adds, “buyers need a successful REO agent to critique the home and ask the bank to improve the property.”

J.C. Underwood, executive director of Metrolina Real Estate Investors Association, also recommends getting educated through joining trade associations to get foreclosure process trainings. “Learn the business,” he said. “It’s not for the weak of heart but it’s not scary either.”

Contacting the Owner of a Foreclosure

Are you eyeing to purchase a foreclosed property? Then you should learn how to get in touch with the possible owner of your future home.

Homeowner. Pre-closure is the initial stage in the foreclosure process wherein the homeowner still remains the contact person for the property. This happens when a Notice of Default (non-judicial states) or Lis Pendens (judicial states) has been filed against the homeowner because of missed mortgage payments. Once the lender records the document, the information becomes a public record, which makes it easier for you to know the homeowner’s contact details.

There are three widely used methods to contact the owners of pre-foreclosed properties. Mailing is considered the best way to start communicating with them. Once the homeowner contacts you through mail, the initial communication becomes easier and they likely won’t have their defenses up.

Another method is through telephone, which will require cross-referencing to get the phone numbers. Just be sure to be professional and courteous. Never be demanding or pushy, as the homeowner might not respond well to this. Remember, never interview the owner through phone; simply asked them if you can talk about the details in the property as this is more professional and productive.

Door knocking is the third method, which is considered an extremely time-intensive option that increases your expenses significantly. Such communication option is practical if the property is just nearby your current residence.

Auction. If you’re interested in a foreclosed property that is set for auction, then you should get pre-approved for a home loan before the foreclosure auction. Once you get pre-approval, check multiple foreclosure listings so you can compare prices for similar foreclosed properties in the area. You can also check your local newspaper’s classified sections under the “Real Estate” and the “Auction” listings. You can as well check with your local realty offices to know if they have listings for area houses up for auction.

Once done, get in touch with auctioneers in your area who specialize in real estate auctions. Otherwise, you contact your auctioneer’s offices to know if they hold house auctions.

REO. If nobody bids at the public action for a foreclosed property and the bank repossesses the property, then the foreclosed property can now be purchased from the bank or the lending institution. Anyone can buy a bank-owned REO.

There are several ways to find bank-owned properties:

• Multiple Listing Service (MLS). Lenders commonly list their REO properties in MLS so you simply ask your real estate agent to help you determine REO offers in your area.
• Bank websites. Most banks have allotted a page on the website dedicated for their listings.
• Online specialists. Zillow is an example of an online specialist, which is actually free. Finding properties on Zillow is easy thanks to their search filters. Other online foreclosure listing services charge a fee.

Once you have chosen a property, inspect it since most of these are “distressed” homes. Furthermore, they are as well sold “as is,” which means repairs or renovations will sometimes be necessary. Then do a title search where you check public records for liens and outstanding taxes on the property. Negotiate, make the offer then pay up for the property. Sometimes, if the homebuyer has good credit, banks will loan the full price of the foreclosure or even more.

If you need further guidance on buying foreclosed properties, please contact Showcase Realty. We have the right people to help make the transaction a lot easier and smoother for you.