Scooping up those foreclosure deals. Is it worth it?
With elements of our economy in turmoil, one unfortunate result is that we see homes go into foreclosure.
Once a home is in this position the banks have the right to force the sale of the home to recoup the money that has been borrowed against it.
But is buying a foreclosure a deal for the Buyer?
Well, it can be, but then, again, maybe not…
If we look at the trainwreck that is the US real estate market, we can see unbelievable deals.
There are so many foreclosure available in their market that nobody really knows just how many are left! If the banks were to put them all up for sale at once, the market could quite possibly implode (worse than it already has).
In Canada, believe it or not, our foreclosure rate is running at a historical average. Nothing is really too much out of the ordinary. Certain markets have more foreclosure homes available (like ours) but it isn’t running rampant.
And the banks are no dummies! They know what they want, and they are going to try their hardest to get it.
Just how does a foreclosure sale work?
It depends on which kind we are are looking at. There is the Order Absolute and there is the Court Ordered Sale.
The Order Absolute is pretty much like any other home purchase. The bank owns the home, an offer is made, and once there is an accepted offer, the deal proceeds like any other.
The Court Ordered Sale is a whole different game! The accepted offer is just the beginning.
The first Buyer to make an offer gets to include subjects like Inspection, Finance, etc. Once those subjects are removed a Court Date is triggered.
Here is where things get interesting.
The first offer becomes public knowledge. Any other Buyer can see what the accepted offer is, and can show up on the court date with another (higher) offer. That subsequent Buyer can not have any subjects. The funds have to be ready, and the Buyer has to be willing to buy the house as is, where is.
It’s best for everyone to show up with several offers, because now it is essentially a sealed bid auction. If nobody shows up to court, other than the original buyer, then the first deal will probably be accepted. If more than the first Buyer shows up, then each Buyer gets to sort through their offers and make a guess about which one will take it…This one…..or that one. Or that one. Hmmmmm. It’s like a guessing game.
I recently played this game, representing a subsequent Buyer in court, and we lost. Not by much, but we didn’t get it. The interesting thing is that the original Buyer came in last and wasn’t even close at the end.
And the house sold for $8000 more than the last list price.
This is where it becomes a question of whether it is a deal or not? In the last year, roughly 50% of the court ordered sales sold for list price or higher. There are deals to be had, but it’s not like the US where you can buy a home in some areas for next to nothing.
If you want to play in the foreclosure arena, know that you may have to pay much more to actually buy the home, and that you run the risk of not getting it at all. It’s not a game for the faint of heart or the first time home buyer. The people who play here know what they are doing and are willing to play hard.
Do you have what it takes?
photo credit: respres on Flickr via Creative Commons