How to avoid getting burned when buying a REO foreclosure

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Every day, people get ripped off when buying real estate in countless ways for innumerable reasons including lack of preparation, overzealousness, and/or all-around folly. Most buyers head into the process swearing that they won’t be the chumps, but somewhere along the way they get caught up in the momentum of the deal and stop asking the right questions. Buyers get all hopped up about the prospect of home ownership, make hasty, ill-advised moves, and next thing they know they’ve spent more and gotten less than they had planned. Even with the perception of monster savings that is associated with bank-owned REOs, buyers of foreclosure properties still find ways to railroad themselves. The following are three tips to avoid some of the more classic pitfalls of buying bank-owned foreclosure properties.

Tip #1: Don’t be afraid of the big, bad bank

Often times, buyers that wouldn’t hesitate to nickel and dime owner-occupants turn to quivering blobs of gelatin when they find themselves staring down the barrel of a bank-owned REO. They roll over on price, refuse to counter a counter offer, and are scared to ask for any concessions or repairs. The banks have worked hard to position themselves in the minds of buyers as stern and unbending, and have worked even harder to perpetuate the myth that their REO properties are sold under the premise of “as-is, where-is, no exceptions, this means you”.

Fear not, timid buyers. You can be just as sassy with your requests when dealing with the banks as you would be with anybody else. What’s more, if you go about it the right way, your chances of getting your needs met are just as good when buying REOs, if not better.

Tip #2: Don’t get caught up in the competition

It is no secret that bank-owned REOs are often listed at prices under market value. Sometimes the original list prices of bank-owned foreclosure properties will fall far below market value, attracting a storm of offers. When this happens, the winning bidder will typically have to climb the ladder and offer over the list price in order to get their offer accepted. Yet when the thrill of competition causes them to climb too high, winning bidders can end up becoming losing buyers.

The key for REO buyers who find themselves in a competitive bid situation is to make an independent determination of value, then develop their offer strategy based on this determination. Once they have a better feeling for the true value of the home, buyers can decide the purchase price at which they would still feel they are getting a good deal, independent of the list price. By sticking with this strategy and not getting swept up in the hype, buyers can know that even if they don’t get their offer accepted, they didn’t allow themselves to get burned on the deal.

Tip #3: Don’t lose sight of your goals

When would-be buyers make the decision to get in the game, they hopefully develop a strategy that takes several factors into account. From a strictly dollars and cents standpoint, these factors include the amount to put down, the amount to be paid per month, the amount set aside for repairs and upgrades, and the amount to be held in reserve. Smart buyers understand that a home must be found that works within the parameter set by these factors, and not the other way around.

Ask anybody who has attempted to either pull off a wedding or perform a large remodel, and they will tell you that things rarely go according to plan. So if one or more of the elements of a home purchase don’t jive with the original formula, what is a buyer to do? When a home purchase takes buyers into unfamiliar territory, they need to stop, take a breath, and reevaluate their strategy, making the necessary adjustments to better understand how all pillars of their financial standing will be impacted. “I think we can swing it” or “We’ll worry about that later” are two of the more popular battle cries of the chronically ripped-off.

Agents have a nasty way of adding unnecessary momentum to real estate dealings, which can take buyers off the rails before they know what’s hit them. Yet it won’t be the agents forking over money that had been set aside for something else, and it won’t be the agents stuck paying an unmanageable mortgage month after month. No matter how rushed they are made to feel, buyers must realize that time is on their side, and there is always a spare hour, day, whatever is needed so that cooler heads and better deals can prevail.