Thanks to cooling housing prices and the sub-prime mortgage meltdown, many bargain hunters are turning their attention to foreclosures. And there are plenty to be found. The number of foreclosure listings in October 2007 was up 94% compared with a year earlier.

Buying foreclosures is mostly the turf of investors looking to purchase properties at below market value prices, fix them up and then sell for a profit, a practice commonly referred to as "flipping." But with home prices in some parts of the country still prohibitively expensive, many first time home buyers are looking into foreclosures. For the right buyer, foreclosures are an excellent opportunity to buy a house at a lower than market value price. I estimate buyers can shave anywhere between 10% and 20% off the market value of a house, but some will have to put in a bit of "sweat equity," as these homes can come in need of repair. Needless to say, buying foreclosed property is more complicated and entails more risk than going the regular home buying route. Here's what you need to know.

 

Tapping Pre-Foreclosures (Short Sales)

 

Buying property in a pre-foreclosure stage, the period between receiving a Notice of Default from the lender and the day the lender puts the property up for an auction may offer the best bargains, but it's also the most difficult. "There's definitely an art to it. "Pre-foreclosures tend to be more for the seasoned investors." For starters, you have to deal directly with the owner of the house who doesn’t really like the idea that this may be their last option. Even if you come to an agreement with the owner this doesn’t mean the bank will approve the transaction. An experienced agent who is familiar with this process can usually decide the likeliness of the transaction being approved. Be sure your agent has experience in this area or the short sale will never be approved. This process can take 1-4 months.

 

Foreclosed Deals


After a home is foreclosed on the bank usually will put it up for sale with a real estate broker. This is the easiest way to buy foreclosed properties, but you are also least likely to get a discount, as the bank will typically put it up for sale at or close to market value. However, the prices are still negotiable. "When a bank only has one or two foreclosures, they may try to get the best value, and not negotiate much "But when they're starting to get more inventory to compound, the banks want to get rid of these properties and you see them starting to negotiate and discount." Currently it's safe to say all banks have massive amounts of foreclosed properties. Now is the time to get a steal.

 

Keep in mind that these transactions are being sold “as is.” The banks typically will not make any repairs but you certainly have the right to the inspections you deem necessary.