Foreclosures are still numbering high in today’s Canadian real estate market and are still a popular option for those looking to buy a home at a discounted price. They tend to be similar to traditional home sales, making it a little easier for first time home buyers to purchase. Depending on the neighborhood and how long the home has been empty, you can get a great deal on a foreclosure/REO home.
1. Understand How the Banks Negotiate
Trying to buy a foreclosure without understanding how it works is a bad idea, and you will need the proper people in place to do the work for you. I always stress this point, but GET A REALTOR that has experience closing foreclosure deals. There is usually a lot of paperwork and sometimes a set procedure to making an offer on a foreclosure, and trying to do it on your own is a fools errand. Banks normally list the home at market value, minus any deductions because of the condition of the property. Understand that you will have to heavily negotiate to get a great deal.
2. “Cash is King”
This says it all. If you have the cash to offer on a foreclosure, you can make a lower offer than mortgaged buyers and still get the home, in certain situations. Try to figure out a way to get cash for the total purchase price, this will speed up the buying process and make things a lot easier. If you cant come up with the cash, you’re still okay. Find a lender to work with and let them know exactly what you are trying to do. If you are an owner occupant (meaning you are buying the home to live in yourself) you will have more incentives in buying a foreclosure, because certain government entities like to promote owner occupancy.
3. Manipulating the Offer
When you make an offer to the bank, you will have a purchase price, earnest money, and “seller paid closing costs”. There is a way to make the offer look more appealing, while bringing down the total price on your end. If you really want the home, put down a high amount of earnest money, and do 1-2% seller paid closing cost. This reduces the total amount out of your pocket, and on paper your offer looks higher to the bank.
4. Don’t Waste Time
As they say, timing is everything, and in order to score this great deal, you will need some good timing. You want to stay updated on local foreclosures as they hit the market, and set up a showing with your real estate agent quickly. This way you know the inventory, and can do your own inspection of the property early on. When a foreclosure hits the market, don’t submit a low ball offer expecting to have it accepted. A bank wants the home sold, but they wont give it away. Wait a few days, think on it, and submit your REASONABLE offer.
5. Properly Inspect
When buying a home, you DO NOT want even the slightest hint of buyers remorse. Make sure that as soon as you have a valid and accepted offer, you get the home inspected immediately. This will save you from any huge surprises later on. If the house needs a lot of work to the eye, don’t write off getting an inspection just because you can see it needs a lot of work. Structural and foundation issues are more expensive than painting and new floors… believe me.
Good luck, and start taking advantage of the great deals!
To read more about buying foreclosed homes please visit:
Foreclosure Listings Canada http://www.foreclosuresearch.ca