Finding a Bargain in the Foreclosure Market

With prices way down and mortgage rates at historic lows, the housing market offers some great deals right now. But the big bargain hunters are looking to push their savings even further, by putting in a bid on a foreclosed property.

There certainly isn't any shortage of opportunities in this economy - according to the National Association of Retailers, 45 percent of all housing sales are currently foreclosures or other distressed homes. For those thinking about taking a dip in the foreclosure pool, there are a number of online resources available to help them in their effort.

Online foreclosure listings

A good place to start are web sites such as www.RealtyTrac and www.Foreclosure.com, which are commercial subscription services providing lists of homes in foreclosure. Both offer free one-week trials. You can also find lists of government-owned foreclosures from Federal Housing Administration (FHA) and Veterans Administration (VA) programs are listed at www.homesales.gov.

On these properties, bids are restricted to homeowner occupancy for the first 45 days of the listing, so you're not competing with big investors. Bids must be submitted through brokers registered with the Department of Housing and Urban Development (HUD), however.

Foreclosed homes typically sell for about 20 percent below the market value. Sounds good, no? However, there's a catch: many foreclosed homes are in poor physical condition or come with legal problems attached, which don't make them much of a bargain. Also, those type of discounts are often found at foreclosure auctions, where you don't have much of a chance to evaluate the property beforehand and your competitors will likely include banks and other savvy investors. It's not a place for beginners.

REOs a good option for inexperienced buyers

A more attractive option for first-time purchasers of a foreclosed property is a REO, or real estate owned (i.e., bank-owned) property. These are properties that have come into the possession of banks or other lenders through the foreclosure process. An REO usually won't have problems with a cloudy title, back taxes or other legal issues, since the bank clears them up prior to the sale. You can also require a home inspection as part of the sale, so that you can still back out or modify your offer if serious problems are found.

Huge discounts are unlikely with an REO, but buyers typically can expect to save about five percent off the market price - perhaps even more with the current flood of foreclosures on the market.

Listings of REO properties in your area are available through the REO Network, a commercial service at www.reonetwork.com, which also includes links to local realtors specializing in REO properties. You can also research Fannie Mae and Freddie Mac REOs at www.homepath.com and www.homesteps.com, respectively.

As in any real estate purchase, buyers need to do due diligence before buying. Research home values in the neighborhood, both by recent sales and assessments. Eyeball the property and the neighborhood, and don't agree to finalize any sales without an inspection. Finally, anticipate and budget for repairs.