From the “Ask the Broker” inbox comes an email from Darrell in Alberta, Canada:
I’m a Canadian looking to get into the Foreclosure market in your area. What’s the best way for me to approach this and where can I find the best information on the process and the pitfalls of these transactions?
Great question Darrell!
<< Fair warning – interminably long post ahead >>
I’m assuming here (and I really hate to assume anything) that the question is asking about homes that have already been foreclosed on — that being taken back by the lender and placed on the open market for sale. If you are wanting information on buying homes at foreclosure auctions, then that’s a post for another day. The quick fact is, the vast majority of homes at foreclosure auctions (more accurately in Arizona — a Trustee Sale) are not bought and they wind up reverting to the bank. Why? The bank wants too much at the auction. They’re attempting to recoup all their losses.
Here’s a couple of points regarding the Phoenix foreclosure market (as defined above) that you want to be aware of.
First, there are a lot of bank owned homes on the market. Keep in mind that “bank owned” = “Foreclosed” = “REO” (Real Estate Owned).
How many is a lot?
Hard to say. At this moment in time, there are 10,770 single-family home listings 9,509 in the immediate Phoenix metro area) and 1,106 condo/town homes in the MLS ((Multiple Listing Service — a database where the vast majority of homes for sale are entered)) flagged as “Lender Owned Property”. Likely there are some properties out there that are either: 1) not really lender owned but are flagged as such; or 2) are lender owned but not flagged as such. After all, the data in the MLS is only as good as what is entered.
Suffice it to say, there are many, many lender owned homes to chose from.
Second, be advised that many of these homes are not in good condition. It’s not unusual for foreclosed homes to be missing such functional items as cabinets, toilets, stoves and light fixtures. Sadly, when faced with foreclosure, many people take everything they can from the home in a last ditch effort to “get something” from their home purchase. I’ve seen foreclosures where the owners ripped out all the wiring. Others were trashed to the point where college frat house residents would be ashamed.
Contrary to somewhat popular belief, not all bank owned homes are trashed. There are many that are in pristine condition (and all points in between). You just have to either shop carefully, or be prepared with money, time and desire to address any deficiencies.
What is the best way to search for foreclosures in Phoenix?
Why right here! You can use our home search and select “Bank / lender owned” from the Foreclosures drop down. Or, if you prefer, just go straight to this page that is dedicated to searching for Phoenix foreclosed homes.
We don’t require any registration for any of our home search tools. If you want to save searches or get automatic updates of new listings via email, then we do require very minimal information. But you will never be hassled with follow up emails/calls. If you need anything, ever, just ask.
But wait! What about BUYING foreclosures?
The process of actually buying a foreclosed home is basically identical to buying any other home owned by an individual. The contracts are the same, the disclosures and time periods are all the same (though you’ll almost never get a sellers property disclosure statement from a lender owned home). Also be advised that some lenders will have additional addendums for the seller to sign.
That said, it is important to know that you should use a buyers agent that is familiar with the REO ((Real Estate Owned — the less nasty sounding term for foreclosed / bank owned homed)) paperwork and process. It can greatly help your chances of having your offer accepted if your agent knows how to handle REO paperwork. I’d tell you which Phoenix agent to choose, but you already know… .
The lender, who is in effect the seller, will want the same assurances as any other seller that you can secure financing. Like any other seller, they will want to know you’re serious and committed to purchasing the home you place an offer on.
For Canadian home buyers of US property, securing financing can be challenging. Thanks to the credit crunch, some lenders no longer service loans for foreign nationals. But some still do. They typically require 25 – 30% down. Other requirements vary from lender to lender. Given the recent volatility of the Canadian / US dollar exchange rate, it makes sense to at least investigate a foreign currency broker — they can save you a bundle.
The Phoenix Foreclosure Market
We’ve already discussed the bloated inventory of foreclosure homes on the market in Phoenix. So how does this impact the foreclosure market?
Bank owned homes in Phoenix tend to be aggressively priced. Lenders aren’t in the business of holding homes. They want them sold. (Which is why the tortuous process of short sales ((A short sale is when a home is sold on the open market for less than what is owed on it.)) is dumb-founding.) So don’t expect to get an offer that is pennies on the dollar accepted. In fact, it’s not uncommon for foreclosed homes to receive multiple offers at or even above list price.
Bank owned homes can often move very quickly. While it is disappointing to get over-bid on a home you really like, keep in mind the 10,000 plus foreclosures on the market and more coming on every day. The odds are overwhelming you can find another home to go after.
The Lowdown – Advantages and Disadvantages of Buying Foreclosures
To wrap this up (finally!) here are a couple of lists. . .
Advantages of Buying Foreclosures:
- Aggressively priced.
- The owner (the bank) really wants them sold.
- Lots to chose from.
- Banks are relatively swift in making an offer decision — often as quickly as a few days (in stark contrast to the weeks on end a short sale decision can take).
- You will have an inspection period (typically 10 days) after contract acceptance to have the home inspected. Cancellation in this period is not difficult.
- The bank is not emotionally attached to the home. This can make negotiations swifter — though there is typically little if any room in price negotiations.
Disadvantages of Buying Foreclosures:
- Condition may be an issue.
- Typically sold “as is” — meaning the bank will not do any repairs (though sometimes they will).
- Buyer competition — may be in a multiple bid situation. ((Multiple Bid — where more than one potential buyer submits an offer on a home))
- Update: Financing Concerns. Sean Terry of the fabulous Deal Makers Blog made a great point in Comment #1 below about potential financing concerns regarding property in poor condition. Be sure to read it!
Hopefully this tome answers some of Darrell’s (and others) questions. I could ramble on forever about this and still miss something. Should anyone have any questions, drop a comment here or contact me!
As always, anyone reading who has anything to add is welcome and encouraged to do so!