Buying a Foreclosure? You Need a Strategy

Buying a Foreclosure? You Need a Strategy

By Guest Contributor Anne Steinhauer Chakos, Sales Associate, Coldwell Banker Residential Real Estate, St. Armands Office

Most buyers I have met in the last four years ask to see foreclosures. The banks refer to foreclosures as REO for Real Estate Owned. They are deals, right? Bargain basement prices on homes that the bank cannot wait to dump. Sweep in, make an offer and it's yours. Right?

Not always.

In my experience, I have found some banks use strategy of their own. They price a home a bit under market. This attracts lots of interest. They require the property to stay active on the market for seven days before they start accepting offers. In some cases, there is so much interest that multiple offers are made. The bank instructs the listing agent to ask for "highest & best" and then a winner is selected.

So what should you, the buyer, do in a multi-offer situation?

Have your own strategy.

It is critical you do not let emotion or competitiveness drive your actions. Instead, with the help of your real estate agent, determine a fair market price for the home. Next, decide what you are willing to pay for the home and stick with it. Make your initial offer a strong one. If you can pay cash, do it. If you are pre-approved, get full approval from your lender. Put at least 1.5% of the purchase in escrow upon seller acceptance.

What if the bank still comes back and asks for highest & best?

Don't panic. If you left yourself a little room on your initial offer price, then go up. If you went in at your highest price, but you left yourself some room on the close date, then shorten the close date, or up the escrow deposit. Here is what you don't do - don't believe this is the only house for you. There are others out there.

And if it is your dream home? Again, pick a price and stick with it. Do you plan to live there for the next 15 to 20 years? Then a $5,000 to $10,000 won't make difference in the long run. If you plan to finance the purchase, your lender won't lend for more than it is worth, so be prepared to pay the difference in cash.

Whatever the result, rest easy knowing you did your best.