Many of my clients are interested in the foreclosure market. Often times these homes can represent a great opportunity for a buyer to acquire a home significantly below market value.

Currently in Hennepin County there are over 700 homes in foreclosure. And indications are that this number could increase in the coming months. I have been on both sides of a foreclosure sale many times. Here are important facts that buyers need to know:

1. Homes listed for sale by real estate agents often times come from an asset management company that represents the bank that has foreclosed on the property. The bank becomes the formal owner of the home by having purchased the Sheriffs Certificate at the Sheriffs Sale and then waiting for the previous owners 6 month redemption period, or their right to cure the default and bring all back payments, late fees and interest current, to expire.
2. Listing agents perform Broker Price Opinions to determine a price that the home should sell for given current market conditions. Often times these list prices are further supported by multiple appraisals and assessments to ensure that the asking price is “fair”. Does this mean there is absolutely no room for negotiation? Not necessarily. You can expect a small bit of flexibility, but generally not more than 10% off the asking price. Many banks will state that if you plan to offer less then 90% of asking price, your offer will be outright rejected. In fact, you’ll probably have better luck negotiating a bigger discount from a private party than a bank.
3. The bank doesn’t “have” to sell. They will sell, but generally not at ridiculous discounts.
4. Foreclosures are prevalent at all price points from the $30,000 1 1 /2 story in NE Mpls or St. Paul to the million dollar homes in Orono or Eden Prairie.
5. Foreclosure is a label describing the financial state of a previous owner who could not make payments. It is generally associated with homes in disrepair and poor condition, but not always. I have seen homes in EXCELLENT condition that are foreclosures too. Just be aware of the following:
   • Most of these homes have been winterized, meaning that all the plumbing has been turned off, and water meters disconnected. Some times electric and heat have also been turned off, so bring a flashlight.
   • You’re buying the home “as is”. What you see is what you get. Most bank foreclosures have separate addendums making sure you understand the sale is “as is” and repeat this verbiage multiple times in all the information that is provided. The bank has never occupied the home and makes no warranties or representations about the home or it’s condition. Be prepared to satisfy yourself!
   • You can have a home inspection(s) and generally speaking you can cancel the purchase agreement and receive your earnest money back if you are not satisfied with the home inspection report and act within the specified time frames. In some cases however, this option to cancel, (aka the “escape clause”), must be warranted based on the findings in the inspection report. In other words, if you are purely looking for a way out because you changed your mind, and the inspection gives no indications of anything wrong with the home, plan on losing your earnest money.
   • Make sure you can be approved to purchase the home and secure financing. In some cases, if your financing falls through for any reason, you lose your earnest money.
   • Earnest money requirements can range from a minimum of $1,000 or $2,000, to 2% – 3% of the sales price, whichever is more and often times must be in the form of a cashiers check, so be prepared for this type of an investment. Bear in mind that often times, depending on your mortgage, if you are financing 100% of the sales price and the seller is paying your closing costs, you can expect that a good portion of your earnest money to be refunded to you at the closing.

I recently found a single family foreclosure for sale in Eden Prairie that was listed $270,000 below tax assessed value. Now that’s a big upside, especially when the asking price was $100,000 below all other homes that had sold over the past year within 1/2 mile of the property.

Great deals can be found, but don’t expect to “lowball” the asking price of a foreclosure. They are already priced to sell and many times represent excellent opportunities at face value. Adjust your expectations and you could find a gem, otherwise, you’re probably just wasting your time.

For help finding great opportunities in the foreclosure market, contact me at michael@keybisrealty.com or call me directly at 763.257.9249