Real Estate

No Shortage of Home Buying Options, or Risks

Hiring a real estate broker or searching the newspaper ads or real estate magazines are some of the common and traditional ways buyers look for real estate and homes. There are many other options, though. Many aren't new, but they're becoming increasingly popular as the US economy and housing market recover from the Great Recession.

It's possible you may find your dream home, a nice investment or the deal of a lifetime using any of these strategies. Just make sure you're aware of the risks and pitfalls beforehand.

Real Estate Options Everywhere

The ways you can find and buy real estate are really only limited by your imagination and determination, but here are some strategies buyers are using to find deals:

Foreclosures & Short Sales

If you read the paper, watch TV or listen to the radio for only a few minutes on any given day, you're sure to come across someone touting foreclosure sales as the way to get your dream home or investment property for pennies on the dollar.

Likewise, short-sales, where the homeowner avoids foreclosure by selling the house for less than what's owed on the mortgage, are advertised by sellers and banks as a great money-saving strategy.

They aren't lying, either. You can find a deal. But, they're not exactly telling you everything. For instance:

  • A short-sale can only go through if the bank agrees to it, and that can take weeks or months
  • There's no guarantee the bank won't foreclose, even if you've made an offer on the home in short-sale
  • The bank doesn't have to sell to the highest bidder at a foreclosure sale, and rest assured it won't sell if the highest offer doesn't cover most if not all of the outstanding balance on the mortgage
  • The foreclosure scandal slowed down the sale of homes, and may continue to do so as banks and lenders strive to make sure all the Ts are crossed and Is are dotted in their mortgage and foreclosure papers and processes

Bank Sales & REOs

Real-estate-owned properties (REOs) are becoming very popular, especially as alternatives to short-sales. Here, when a bank or mortgage lender isn't happy with the bids a foreclosure sale, it buys the property and sells it as an REO.

As a general rule, banks don't want to own property. They deal in money, after all. So, one of the advantages to REOs is that banks tends to move quickly and accept the first good offer it gets that comes close to what they paid for the houses.

There are some risks and pitfalls to be wary of:

  • Odds are, you aren't the only one interested in the house, so don't be surprised if your offer isn't the first and isn't the best, at least in the bank's opinion
  • There may not be many REOs in the area you're looking at, and banks are being cautious not to put too many REOs on the market at one time so as not to drive down real estate prices even more
  • The house comes as-is, and you can expect to find problems that need fixing, especially if a house sat vacant for months or years during the foreclosure process

"Divorce" Homes

Like foreclosures, short sales and REOs, divorce is another example of where someone else's misfortune can be your good fortune. Couples going through divorce may be in a hurry to sell their home and get on with their separate lives as quickly as possible.

Sometimes one or both of the homeowners sell home furnishings along with the house so they don't have to deal with moving them to keep one spouse from getting them as part of the property settlement.

Some potential problems with "divorce" homes include:

  • One spouse may be eager to sell while the other isn't, so it may not be a fast deal, or the deal may not go through at all
  • If both spouses have real estate agents or divorce lawyers, the sale process may be even slower because communications must pass back and forth from all the different representatives
  • A spouse who doesn't want to sell at all may intentionally damage the house to discourage potential buyers and prolong the selling process

Flipping

House flipping is when someone buys a property, usually at a bargain price, lives there for a short while and makes improvements and then tries to sell the house at a profit. Usually, the flipper will then buy another home and repeat the whole process.

Flipping is more common with the foreclosure crisis, and again, you can find a deal. Especially if the owner needs to sell the home quickly to keep from falling into foreclosure himself. After all, it's hard for most people to pump money into home improvements over a short period of time and keep up with mortgage and utility payments, too.

Some things to be wary of include:

  • If you're looking to finance the purchase with an FHA mortgage, normally you won't be able to get one unless the seller has owned the house for at least 90 days. The good news is the anti-flipping rule is suspended through 2011
  • Sellers are investors, so unless they're in financial trouble themselves, they may stick firm to their asking price
  • The owner-seller may have cut corners and costs on home repairs and improvements to save money and get the house on the market quickly

What You Can Do

No matter which strategy you're thinking of using, you can protect yourself by:

  • Getting pre-approved for your mortgage before you even look at your first house. That way you can move quickly if you find the right deal
  • Get a thorough home inspection, especially for any home that's been sitting vacant for months or years during a foreclosure
  • Buy title insurance when you buy the house to protect you against others claiming to own the property. Given the foreclosure scandal, this is a good idea because the original owner could come back and claim the property
  • Hire your own real estate agent (called an exclusive buyer's agent) who's familiar with foreclosures, short sales or REOs in your area and who will look out for your best interests, not the seller's

There are deals out there, and you may be able to find one. Just be sure to know what you're buying and how to avoid potential problems.

Questions for Your Attorney

  • Can a bank foreclose on a house after it accepts my offer in a short-sale?
  • Does the buyer or seller pay for title insurance?
  • Can I file a lawsuit against the seller if I find defects in the home that weren't disclosed to me before the sale?

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