How to Buy Foreclosure Homes for Sale

Two Parts:Doing Due DiligenceMaking Your Offer and Finalizing the Deal

You're on the market for a new home and up it pops. "Foreclosed property." Hmm, you think, maybe I can get a good deal here? Fret not, surveyors, you've come to the right place. Below are some tricks and tips that will help you navigate the world of foreclosed home buying.

Part 1
Doing Due Diligence

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    Get acquainted with a real estate broker who has a relationship with banks that specialize in foreclosed homes.[1] Comb through websites with foreclosure listings — not to look at homes, but to locate a broker. If you locate the bank's agent, you'll do yourself a favor in two ways:
    • You won't have to split a commission two ways. A lot of times, you can work directly with the bank's agent to finalize a deal, obviating the need for your own broker, who serves as another middleman. The fewer middlemen involved in the sale, the less money you'll have to shell out.
    • Bank's brokers often have an inside line on foreclosure listings. Often a broker will sit on listings for up to a week before they are input into the listings database. If you ask the them about these listings, the broker could steer you to hidden gold — houses that have been foreclosed on but which haven't officially hit the market yet.
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    Get a preapproval letter from your lender before you start looking in earnest. Not having your pre-approval letter, which describes how much money you'll be able to borrow, can mean missing out on great opportunities. Because houses can move so fast, buyers often don't have the luxury of working out financing after they've targeted a house.
    • Don't assume that you'll be able to get financing from the same lender that is selling the foreclosed home. Although the same institution that is selling the home may also be in the business of financing, they may not have the best deal, and the two departments — REO and financing — don't necessarily work in tandem. Like buying a car, having your financing set before you go to the dealership is often the best course of action.
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    Get familiar with the law in your state. It sounds boring, but getting sued for criminal damages because you don't have the right font size is no laughing matter. Foreclosure laws differ from state to state, and flouting them can mean more than a big hassle. Don't rely on your real estate agent, if you choose to get one, to give you legal advice.[2] Instead, bone up on your state's laws and consult a lawyer if you need to.
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    Think twice before flipping, especially if you've never done it before. Flipping foreclosed houses is especially tricky. The old bank (sellers) won't let you in to the property to begin renovations until you own it, and the new bank (financiers) won't let you own it until the paperwork is done. If property damage or renovations end up costing more than you expected, or if you are unable to find a buyer quickly, your new home can quickly turn into a volatile asset.[3][4] Buyer beware.
    • The smartest investors will look at the foreclosed home as a longer-term investment. Those who stick with their asset for 7 to 10 years may be more likely to recoup their principal — and then some — than those who are merely looking for a get-rich-quick scheme.
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    Be a detective and ask questions. Knowledge is power; you often won't get to the bottom of things until you've begun sleuthing around. In foreclosed homes, as in the rest of life, what seems too good to be true often is.
    • Figure out long has the home been for sale. A home with a too-low asking price that's been sitting on the market for 8 months often has something wrong with it.
    • Ask the property's neighbors, “Why hasn’t this home sold already?” Sometimes, the neighbors will be able to give you information that's not in the bank's best interest to disclose.
    • Ask the bank, “Why did the previous owners enter foreclosure?” There could be a major property defect in the house that you'd otherwise not know about.

Part 2
Making Your Offer and Finalizing the Deal

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    Look for comparables, or comps, when you price your offer. Find out what other foreclosed houses are selling for in that neighborhood, with the same basic specs your target home has. Then calculate an offer that fits within the comps range and, most importantly, fits within your budget.
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    Know that banks often underprice and overprice their listings. Often, the banks that set the list prices on foreclosed homes get it wrong. Sometimes, they list the home really low, in which case you're likely to have multiple offers over the list price within days or even hours. Other times, they list it for over what the property is probably worth, in which case you can lowball them and hope for success.
    • There's no "secret" to figuring out whether the pricing on the home is fair. Look at comps, how long the home has been on the market, and pay attention to market conditions (is the market heating up or winding down?). Trust your instinct; be aware of your budget.
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    Expect to get burned once or twice on a home that you really, really like.[5] It happens to the best of us, and it will likely happen to you. Sometimes, banks will slash prices in order to generate buzz and multiple bids. When that happens, even if you overbid, you're likely to lose out on the property that seemed like a steal when it was listed. The disappointing fact is that there's no real way around this. The good news is that being burned once or twice will harden you, and you'll be ready to pounce the next time.
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    Get an inspection before you pull the trigger. An inspection may set you back $300 to $500, but a serious defect in the property, such as termites or structural damage, will definitely set you back even more. And guess what? The bank sells foreclosures "as is," meaning if there's something wrong with the property when you buy, you assume the responsibility for fixing it.
    • Make sure to get the utilities turned on by the bank before the inspection takes place. It's very hard for inspectors to give the property a legitimate once-over if the utilities aren't on.
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    Get estimates for repairs and improvements before you buy. Knowing how much you're likely to spend on repairs and improvements on top of the asking price for the home will let you know whether you're getting a killer deal or getting hoodwinked.
    • Factor in unexpected costs into this assessment, too. There's a fair chance you'll end up exceeding your budget, especially for foreclosed homes. If the property is still a steal after a conservative repair/improvement estimate, you're good to go. If you don't end up spending as much as you had originally budgeted, you're golden!
    • A good rule of thumb to use is to set aside 10% of the listing price for repairs. That may seem high, but if you undershoot it, you can pocket the change. Plus, it's better to be honest than optimistic, at least when it comes to homes.
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    If homes in the area are selling quickly, or the market is getting torrid, start with your best and biggest bid. When there's lots of competition, an extra $5,000 can be the difference between success and failure. If you show up with your guns ablaze and mean business from the start, you'll probably have a higher likelihood of success.
    • Don't assume that because the home is foreclosed, or because a bank is listing it, you can undercut the list price by 50% and get away with it. In fact, many bank-appointed real estate agents in charge of selling the foreclosed property will take this as an insult, and it could stall the bidding process. People (and banks especially) aren't going to let you get away with highway robbery.
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    Be patient. Patience is a virtue, and it's one that many people buying foreclosed homes don't cultivate. Your advantage over these people is your willingness to wait for the right deal to come along. Don't get attached to a home before it's yours. After you've gotten burned once or twice, and when all the stars align — the list price is within your budget, the house checks out, the repairs aren't substantial, and the bidding so far is lukewarm — pounce quickly and ruthlessly, like a Serengeti speedster tracking down a gazelle. Good luck!


  • Offer cash, lots of it, and a quicker closing date than what you think the lawyers can get. This shows your willingness to get the deal done.
  • Be strong in your offer or the bank will not believe you are a worthy buyer.
  • Remember that this is not for sale by a resident but by the bank. They don't care about anything but terms. Not personal property, not the condition of the property, it is *As is, with all defects, etc.*


  • Get a real estate lawyer immediately.

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Categories: Buying Property