Planning to buy a home in 2011? If so, you should also consider buying a foreclosed home. There will be plenty of them to go around in 2011, and they typically represent a good deal for buyers.
According to the folks at RealtyTrac (who know more about foreclosure stats than you and I, and just about everyone else), 2011 could be a record year for home foreclosures. They expect foreclosure filings in the U.S. to climb by as much as 20 percent in 2011. That’s astounding, when you consider the amount we had in 2010.
Rick Sharga, senior vice president at RealtyTrac, thinks we will see a peak in foreclosures in 2011. The hardest-hit areas, he said, will continue to be those that were overbuilt, overheated and overpriced during the housing boom. This includes places like Phoenix, Las Vegas, South Florida, and the central valley of California — among others.
But regardless of where you live, there are bound to be foreclosed homes available in your area. These homes can be a good deal for buyers. They are often priced a little below their true market values to ensure a quick sale. In some cases, they’re priced well below market value. When you consider the sheer volume of foreclosure properties, and the potential savings they bring, you can see why they are worth considering.
3 Ways to Buy Foreclosures in 2011
Buying a foreclosure home is not for everyone. No matter how much they research the process, some buyers are simply not comfortable with it. And that’s okay. There are plenty of homes available through traditional sales as well. The following information is for the hardier souls, those who are willing to brave the potential uncertainty of buying a foreclosed home.
So, how do you go about buying a foreclosure home in 2011? What are the steps involved? First, you need to understand the different stages in the foreclosure process. The process varies from one state to another (based on state laws), but the basic stages are the same:
1. Pre-foreclosure: John Doe falls behind on his mortgage payments. Maybe he lost some of his income, or perhaps his mortgage payment increased in size due to an ARM loan adjusting. Two or three months after falling behind on the payments, John receives a notice of legal action from the lender. This is the pre-foreclosure stage, where the homeowner has defaulted but the lender has not yet foreclosed on the property. When the lender files a legal record of the homeowner’s default, it becomes public information. During this stage, John might try to get back on track. He could do this through reinstatement, or one of several other foreclosure-avoidance options. He might even sell the home through a short sale, with the lender’s permission. This is one way to buy a foreclosure in 2011 (or a pre-foreclosure, to be exact). If none of these options work out, the bank will eventually foreclose on the home.
2. Auction: This is often the next stage in the foreclosure process, after the bank forecloses on the home. At this point, the homeowner has been evicted from the property. Next, the bank wants to sell the home as quickly as possible, since it’s a “non-performing asset.” An auction is one way to go about it. Bidders who have cash in hand can bid on the home. Generally, their bids must be above a certain starting point. If the property is sold through auction, that’s the end of it. If it’s not sold at auction, the home goes back on the market as a bank-owned house. Sometimes the auction process is skipped entirely. For example, if the bank feels there’s not enough local demand for such properties, they might skip the auction and just list the home on Realtor.com, RealtyTrac.com and similar websites.
3. Bank-owned home: When a foreclosure home comes back on the market for sale, it’s usually referred to as a bank-owned home. You can find these homes listed on the two websites mentioned above. The home might have been through an auction prior to reaching this stage, or the bank / lender might have skipped the auction. Either way, you can be fairly certain that the homeowner who defaulted is now out of the picture entirely. From a buying standpoint, most experts agree that this is the safest stage of the process. You might not get the kind of deal you would get during an auction. But you can probably rest assured that the home is “free and clear” of any liens or other legal claims. Learn more about buying bank-owned homes.
So how much money could you save by buying a foreclosure home in 2011? This depends on who you ask. It also depends on the kind of market you’re in, particularly the supply and demand situation. Most sources say the average savings is 5 – 15 percent off market value.
But this brings up another question. How much is market value? To answer this question, you need to look at comparable sales, or comps, for the area where you plan to buy. Try to find sales data from regular transactions (not short sales or foreclosures). This will give you an idea where the market is, in terms of home prices. It will also help you spot a good deal, whether it’s on a foreclosure home or a regular property listing.