Considering the Bank Owned Market?

The real estate market is in its second year of decline and there are many buyers who are looking at buying a foreclosed or bank owned home. In fact, there are many bank owned properties on the market right now and it is projected that the number will increase through the summer of 2008.Buying a foreclosed home is not right for everyone and it does not mean that you are going to get a home at a low price. It takes a lot of effort and time to find the right property. I know many investors who pursue properties in the bank owned market who claim they may have to look at up to 30 homes before finding one worth purchasing.So this is not an approach that one should take on lightly. Great deals do not come easily in the bank owned market and one can end up with a property that requires a lot of repair and could cost more in the end. But there are some good buys on the market if you spend the time to find them.There are two main ways of purchasing bank owned homes. The first is in the normal real estate market where properties are offered through real estate agents. The second is through the auction market where the home is sold to the highest bidder.AuctionsThe auction process is the riskier approach to buying a property. I recommend that you only pursue auctions if:1) You know how to properly research a property2) You know about the building or remodeling trades so that you can assess the condition of a home3) You have a lot of time to do proper investigation and you are not ina hurry to move4) You can afford a potential loss of your deposit-sometimes you will win a bid only to later find out the property is not right for youWhy is the auction process riskier? When a property is purchased at auction the buyer does not have a traditional due diligence period to investigate the property. So before you go to the auction you need to so some research on the property. What you are looking for is:
how much is owed on the mortgages
if there are liens against the property
if there are taxes due to the municipalities

An auctioned property is not going to deliver the title to you free and clear of encumbrances. So it is up to you to pay off any liens on the property. This, of course, adds to the total cost of the home.You also may not have much time to inspect the property. In fact, you may not get to see the inside of it at all. So before the auction, try to look at it if you can. Looking at the outside is usually easy, just drive or walk by the property, if it is vacant you may be able to peer in the windows. (I urge you to get permission before going on the property.) What you want to do is get an idea of the condition of the property so you can determine how much it will cost to repair, if repairs are needed. Some things to look at:
the condition of the roof
the condition of the exterior- does it need paint or repairs
the condition of the interior -does it need kitchen or bath updating?
the condition of the heating systems
the condition of the plumbing

These are the major cost items with one exception. If the house is not on a public sewer system then it may have a private septic system. Septic systems can be very expensive to replace and there is no easy way to determine the condition short of having an inspector check it out. It is unlikely that you will have the access or time to perform such an inspection.Real Estate MarketsBanks often attempt to market properties in the normal real estate markets using real estate agents. To find these homes contact a local real estate agent or search through the local Multiple listing services at your favorite real estate web site.Why is this a better way to shop for a bank owned home? First, there will often be more information about the home available. Real estate agents will often do some preliminary information gathering and will make it available to you. Second, you will have the opportunity to look at the house, both inside and out, to check its condition. Third, you will be able to make an offer that has a due diligence period so that you can do proper inspections of the home to uncover defects. This way you know exactly what you are buying. In the event you find a major defect in the home during inspections you have the opportunity to back out of the purchase and get your deposit money back. (make sure this contingency is included in your offer to purchase)Buyers who want a bank owned property but may not have the skill to properly investigate on their own, this is a great approach. If you do find a bank owned home you love and decide to make an offer, be prepared to wait for a response to your offer. Banks are not very responsive. It could take 1 week or more for a decision on your offer and 4 weeks is not uncommon.