So, you finally decided to buy a Louisville home. Chances are everyone from your parents to your coworkers to your cousin's roommate's great-aunt Myrtle told you to buy a foreclosure and get a "great deal." You have listened to the national news and heard you can get a home for pennies on the dollar. You are now ready to go out and steal a home from a desperate bank. Before you get in the car, scan through this list of Don'ts and make sure you are really ready.
Don't Ignore Reality
Let me save you some time and effort at this point. First, real estate is local. In fact, it is hyper-local and the reality of the Louisville market is foreclosures exist, but steals are very hard (read: nearly impossible) to find. You could express the selling price to value ratio in terms or pennies on the dollars, but it would be much quicker to use 3 quarters and a dime or two.
Don't Despair
Knowing this, you are ahead of many buyers. Better yet, while they are wasting time making ridiculous offers that aren't even being considered, you will be doing the things that will give you the best possible chance of finding a deal.
Don't be a Masochist
Unless you enjoy rejection, the first step to successfully buying a Louisville foreclosure is getting pre-approved. Banks want to sell their properties quickly. This means they won't even consider accepting a contract where the buyer may not be capable of getting a loan. Some banks will even require you to be pre-approved by their office before submitting the offer. Getting this step taken care of will take a day or two at the front end, but save you tremendous grief later.
Don't Hesitate
Hundreds if not thousands of other buyers are sitting on the sidelines with the same game plan as you. Amongst this crowd is a number of investors who are throwing out offers on every Real Estate Owned (REO) home that hits the market. On the best values, multiple offers occur within hours. If you find a home that fulfills your needs and wants and your real estate agent tells you it is a bargain, make an offer. Too many buyers try to look for greener pastures and lose out.
Don't focus solely on Price
Understand banks want strong offers. If you want the best possible price, give the bank everything else.
•1) Make a sizable (1.5-2%) good faith deposit
•2) Agree to close in 30 days or less. (Pre-approval helps here)
•3) Agree not to ask for repairs. (You are buying the house as-is anyway)
•4) Do not make ridiculous requests. (They are not going to throw-in a stove.)
Don't be (too) Greedy
Despite wanting to get rid of the REO home, the bank is still a for-profit entity. They understand the value of the home and are not anxious to give it away. Most likely, the list price is 5-10% below market value. Requesting an additional 20% is generally not going to fly. In fact, the best-priced Louisville REOs often go for higher than list price. When you find a home you want to live in and it is a good deal, make a serious offer.
Don't forget inspections
Just because you are buying the home as-is, doesn't mean you shouldn't have it inspected. Since the seller has never occupied the property, he/she is not obligated to complete the Seller's Disclosure Form. Without a professional home inspection, you are putting yourself in jeopardy. The Louisville Sales Contract and most bank contracts do allow for an inspection period. Each also permits you to walk-away if major problems are discovered. Take advantage of this clause.
Don't Delay
Most bank contracts have a "Time is of the Essence Clause." If you sift through the legal jargon, this paragraph says that if you cause the closing to be delayed, you have to pay an outrageous penalty ($100/day is typical). So, make sure all documents are accurate and submitted quickly. By the way, if the bank fails to close on time (and they probably will), you do not get any allowances for your inconvenience.
Don't try this Alone
Buying an REO property is more risky than buying a home from traditional sellers. A Louisville real estate agent will can help you
- Find homes as soon as the come on the market so you can beat others to the table,
- Verify the price is a value,
- Help you find a lender who offers the best loan program for a particular home,
- Write a strong offer while preserving that value,
- Arrange an inspection,
- Negotiate repairs,*
- Make sure you get to the closing table without penalties, and
- Insure the whole process is as painless as possible.
*Despite the as-is clause I have been able to successfully negotiate repairs and or credits for major items such as termites, storm damage, etc. Oh yeah, the best part is my services don't cost you a thing.
Now that you are prepared, give me a call (502-921-3989) and we'll review your needs and wants to determine whether buying a foreclosure is the right thing for you.
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See Also
Louisville Investment Homes; Why you should buy one now
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Erik Hitzelberger is a licensed real estate agent with RE/MAX Alliance in Louisville. If you need a Louisville Real Estate agent please email me or call 502.921.3989.
I specialize in the following areas of the Metro Louisville Area: Jeffersontown (J-Town), Okolona, Fern Creek, Shepherdsville, Mt Washington, Hillview, Brooks and Pewee Valley. Click the following links to learn more about Louisville and Bullitt County Real Estateor to Search for Louisville Homes
