Foreclosures For Sale

With the housing market in a freefall, is this the time to purchase a foreclosed house—as either an investment or your new home? At this writing, you’d have more than 1,400 (foreclosurenet.net) to 2,000 (foreclosuredeals.com) from which to choose—and that’s just in Hennepin County. The listings include properties in the foreclosure process and those where the owner’s rights to the home have been terminated. In early April, Congress is proposing a tax credit for anyone buying one of these homes.

Foreclosure properties have become a very active market lately, with many real estate companies and agents working exclusively in this niche. But Barry Tanner, a realtor specializing in single-family residences and income property at Edina Realty, has been focusing on this market for almost three years.

In the past year, there’s been a doubling in the number of foreclosures in Edina Realty’s database of available properties. “The past three or four months have been busy, with buyers testing the market for bargains,” Tanner says.

The foreclosure market is broken primarily into two segments: properties in default on mortgage payments that are going through the process of foreclosure, and bank-owned properties, also known as real estate–owned properties.

The vast majority of for-sale foreclosures fall into the latter category. But either way, buying these houses usually takes considerably more time than in the normal home-buying scenario, and the process can easily be stalled due to the number of parties—servicing companies, investors, banks—that have to sign off on a sale.

One clear difference in this market: Foreclosed homes are sold “as is.” That means a prospective buyer needs to hire an independent inspector to go through the property. Obviously, foreclosed properties were owned by people who had some financial trouble, so many times these houses are in disrepair. Missing appliances and copper pipes, broken windows, and frozen plumbing are some of the problems these houses may have. A buyer who’s “a little bit handy is at a definite advantage,” Tanner says.

But don’t expect banks to be giving these houses away. They’re trying to recoup as much of their investment as they can, though it is possible to find bargains.

Pricing on foreclosed homes is highly fluid. With no clear signs that the market has found a bottom, prices are a moving target, more often than not requiring some day-to-day knowledge of those trends. “Banks differ from one to the next based on the number of homes they have in foreclosure, the condition of the property, and the amount of time the house has been on the market,” Tanner says. “For instance, if a house is in a less desirable neighborhood or needs a lot of work, then the bank might be inclined to be more aggressive on price.”

In addition to the standard variables concerning price, a key determinant in this market is the number of foreclosed properties in a given neighborhood. The more such properties, the more aggressive—i.e., lower—the pricing.