Luxury real estate: How to snag a deal on a foreclosure or short sale

July 5, 2011

Opportunities to buy foreclosed — or soon-to-be foreclosed — luxury homes are on the rise. But watch out for the pitfalls that could sour what seems like a sweet deal.

“We’re certainly seeing more of those properties coming to market and more of those properties foreclosed on,” says Rick Sharga, senior vice president of RealtyTrac Inc., publisher of the largest database of foreclosure and bank-owned property records.

Foreclosures of homes valued at more than $1 million increased by 90 percent between 2007 and 2010, a RealtyTrac analysis found. Banks had been reluctant to foreclose on higher-end properties due to the limited number of potential buyers, but Sharga says he expects more higher-end foreclosures in the future.

“There are bargains to be had,” Sharga says. But “unless you’re absolutely in love with the property,” hold off until you know you’re getting a great deal, he notes. Foreclosures sold at prices an average 27 percent below non-foreclosed property in the first quarter of 2011, he says.

James Reid, a businessman from Anchorage, Alaska, was looking to pick up a house in the Seattle area to avoid staying in hotels on his regular trips there. He and his wife found a property on Puget Sound that had sold for $1 million-plus and was on its way to foreclosure. While the price to get the two-bedroom, two-bathroom waterfront home was discounted in a short sale to about $750,000, Reid said he made a cash offer of $650,000.

“We were reluctant to purchase a short sale home because of the horror stories we’ve heard about closing, negotiations, time,” he said. The Reids were also building a vacation home and didn’t want any more hassles.

They learned that while the seller might be okay with their offer, it was still up to the mortgage holder to agree to the price, since a short sale is an agreement to accept less money than is owed to avoid the more cumbersome and lengthy foreclosure process. The first mortgage holder agreed. But a second mortgage holder that did not. After a lot of negotiating, the deal was sweetened to $730,000 and closed in about three months, Reid said.

The increasing opportunities at this level in the market has also brought in a different kind of buyer, real estate observers say. Investors, not would-be homeowners, are snapping up higher-priced foreclosures. A RealtyTrac analysis found the biggest percentage of foreclosures with mortgages of $1 million or more are in California (35 percent),  Nevada, (14 percent), Florida (11 percent), Arizona (11 percent) and Illinois (nine percent).

Several real estate observers said the hottest markets for foreclosures in the high-end jibe with the RealtyTrac data. They are South Florida, on both the Gulf Coast and Atlantic Coast, San Diego and Las Vegas.

“The opportunities in Sarasota are unbelievable right now,” said Kathy Marlowe, a Sarasota, Florida, agent with an expertise in high-end distressed properties. “You can purchase that $2 million dollar home for about $1 million now.”

When the most expensive homes come up for sale, they move quickly, says Robert Vacko of Executive Asset Management, a firm which handles sales of distressed property. “These high-end foreclosed assets are on the market for fewer days than lower-end homes,” he says. “We are able to move our portfolio of high-end assets twice as fast as lower-end priced assets. Additionally, we often will see multiple offers for the higher-end assets.” Bidding wars are not uncommon.

Buyers of foreclosures and short sales tell tales that typically have a bit more drama than the traditional home purchase. Here is some advice from real estate experts for would-be buyers of high-end foreclosures.

Work with a real estate agent who has specific expertise with distressed properties. On the National Association of Realtors website, you can filter agents who are certified in foreclosures and short sales. Interview at least three and ask about their history with foreclosure sales.

Do your homework. Find out what other similar properties are now selling for to determine whether you’re really getting a deal. Real estate agents can spit our reports for you so you can see comparable home sales over the past year or two. If you want to start doing your homework before you’re working with an agent, you can get an idea from sites including Zillow.com, Trulia.com and Domania.com. Looking at government property records will show you previous sales, but tend to not let you extract data in a way that allows you to search an area.

Be patient. Few people know more about real estate than Jim Gillespie, who is chief executive officer of Coldwell Banker. He purchased a distressed property in California a few years ago for a family members. He experienced delays due to the sometimes tangled mess left by the previous owner, including other unpaid loans. “We had to wait and wait and wait,” he says.

Gillespie’s advice to anyone trying to buy a distressed property? “You need to be prepared to spend a lot of time waiting.” His offer was accepted five months after it was made. Gillespie said the home was purchased well below the previous purchase price and at a discount to the market, but three years later — due to market conditions — it remains at about the same value.

Don’t assume a high-priced house hasn’t been neglected. Get a thorough inspection with repair estimates, or go through the property with a contractor to determine how much work must be done. Be sure to find out how long the house was unoccupied, which could contribute to potential problems. Consider additional testing if there is suspicion of mold, says Kathleen Kuhn, president of HouseMaster Home Inspection Service.

A HouseMaster inspector in Arizona recently helped a buyer avoid potential disaster with a foreclosed home. The property looked sound from the exterior, but the inspector discovered a heave in the foundation. It was a serious structural issue that would have cost more than $10,000 to repair. The bank didn’t want to renegotiate, Kuhn said, so the deal was scuttled.

Be prepared for the competition. There’s a good chance you’ll be going toe-to-toe with an investor or other buyer who will compete with you on these properties. Michael R. Dover, an attorney at the Chicago law firm Kelley Drye & Warren LLP, said investors aggressively go after pricier properties. They pursue the purchases as soon as an initial notice to foreclose is filed and then try to work out a deal with the bank before the property actually is foreclosed. You’ll need to act fast.

Have your financing ready. It can be more difficult to get financing for homes that have been foreclosed or are involved in a short sale. Robert Fox bought a condo on the Intracoastal Waterway in Boca Raton, Florida, and had to wait six months to get his all-cash offer accepted. His advice to buyers looking at properties where the bank is making the decisions: “Keep looking for other properties instead of wasting six months waiting for an answer.”

Experts suggest getting together as much cash as possible for your offer, which will help with the lender and give you a more competitive offer if others show interest. If the foreclosure is not yet completed, see if it is possible, and the terms are acceptable, to assume the seller’s mortgage in a short sale.

Don’t be too picky. When it comes to high-end foreclosures, particularly at the very high end, be prepared to encounter the customized quirks of the former owner.

“Properties are typically custom-designed for a unique buyer with unique tastes and specific likes, and some are very unusual and border on the weird, often so very specific to the initial buyer that resale is tough,” says Mark Stapp, executive director of the master of real estate development program at the W. P. Carey School of Business at Arizona State University. “No one else likes the details or layout; banks end up with weird high-end properties with expensive finishes, but not a wide range of buyers who like the weird characteristics.”

So if you like bowling alleys (two lanes) or 3,000 square-foot log cabins, a foreclosure might be in your cards.

 

ell first of all, I was in Oklahoma like I said, but I am from Michigan so I had a good idea where I wanted to look and live in my hometown. 

I had contacted a Realtor here in Michigan when I first started looking for a home, she nor no one else ever mentioned anything to me about trying to get a foreclosure, this Realtor was pushing me to look at homes for sale by owners that were always above what I could afford.

So I found and started searching Trulia.com and came across the foreclosures, so I started doing my research on how to get one. I got rid of the Realtor I had too.

I found several homes and I would call the Realtor that had it listed and just make inquires about it without committing myself to any one Realtor at that point, they would always try to direct me to ‘owner for sale’ homes.

I found this home about a day after it was listed so you have to stay on top on the listings and jump fast if you think you really want it. There are investors out there clambering to get these homes for profit.

I don’t know about other states but in Michigan for the first 15 days it’s listed investors or property owners can’t/won’t get it. I guess they can place bids on it but if there is someone that is not an investor or property owner in the state where the home is, their bid comes first even if it’s lower.

You also have to live in the home for at least one year if you get it. I had to sign a paper saying I was going to live here.

After the home is listed for 15 days it opens up to investors and property owners, now don’t hold me to all this but that’s what I was told by the Realtor I ultimately went with, she just so happen to have sold me my first home here and worked with my Mom at one point so I felt like I could trust her that she would be on the up and up with me, still can’t say she really was though LOL…

OK, It all happened so fast my head was spinning and I got kinda scared thinking they really wanted to dump this house quick and something was wrong with it, wasn’t the case though, once they get going it just goes fast. From the time I placed my bid I had the home a week later. I believe it has been listed for 4 days when I made my offer.

Now, you have to have proof that you have the money, I offered just what they were asking $42,400.00.. I did not go through a lender or mortgage company, I got a personal loan from my bank in Oklahoma, I put a car and CD up as collateral for the money,  So I can’t tell you how things would have gone with a lender, I suppose if you have good credit and the proper down payment, should have no problem. But I got a better deal from my bank.

When you make a bid, you have to have proof you have the money or can get the loan, I had to get a letter from the bank showing I had the cash money.

I had a friend come over here and look at the house and do the inspection, he wasn’t a real inspector but he gave me a good idea on what I was looking at.

I would advise a home inspection by a professional.

I just got lucky, but even with an inspection they might not find certain things wrong, just a chance you take when you buy ‘as is’. But I figured for the price I could still afford to do repairs myself if it needed them.  And it did need some but nothing I couldn’t manage.

But you want do want to know if it has termites, or needs a roof, or has major pluming issues, foundation problems, anything that is really going to cost you some big bucks.

You want to look at how long the house has just been sitting empty. I helped a friends son get a foreclosure home down the street here and he did have inspection,  he got the home and then I saw that he had dug the whole front yard up, I imagine the main sewer drain was broke or something.

I had to repair the pipes behind my up stairs bathtub, the ceiling had fallen in in the basement bathroom, I was aware of that, so I got those pipes fixed and the basement ceiling fixed, [they didn’t show the fallen ceiling in the pics on the listing] I had ask for a LOT more pictures to be taken and sent to me.

Then the upstairs toilet wasn’t working, I had to have a new flange put on it, works fine now. Then the basement floor started getting wet in the basement bathroom, I had to tear part of the wall down to find where the water was coming from, the main sewer drain, one of those big pipes everything drains into had cracked, that had to have happened after I was here about a month, because there was no water there when I got here. It cracked more than a foot up, so I had that replaced. The home was built in 1960 and the pipe had just gotten wore out and broke. So home age is something to look at, what has been repaired, replaced or not?? How old is the roof, cause that’s a big chuck of $ to replace.

Now, I said I offered just what they were asking, two days before Fannie May was to make a decision on the bids, the Realtor called me and wanted  me to up my bid, she said there was 6 other bids, I said NO leave  my bid where it is, I was looking for a house when I found this one and if I don’t get it I’ll keep looking.  [who knows if there were 6 other bids or not?]

So the next day she called me and stuck a needle in my balloon and said, ” Are you sure you don’t want to offer more $, I don’t think you are going to get the home” I stuck to my guns and stayed with my original offer. I don’t know what was going on  but I felt like they were just trying to get more $ out of me.

So at that point I had kinda just said, oh well keep looking..

Bright and early Sat. Morning, she calls and said “you got the house”  A lot of things are at play, I guess. They saw that i had the cash money, I was not an investor, I did not own property here, blah blah blah. I don’t know how they decided.

I do know that since I’ve been here and met my neighbors that have lived here for 30+ years, they all knew I was coming from Oklahoma, and who I was. So I found out there was no Realtor confidentiality here LOL. I kinda got the feeling the neighborhood watch picked me to get the house. I’m serious.
There is another home next door to me and they are all worried about who will get it. There have been several people look at it but no one has gotten it yet.

Ok, I found out on Sat. I got the home and the following Monday, they sent a lady to my home in Oklahoma with all the paper work for me to sign, I gave her the check and the home was mine.

I took a total loan of $44,000.00, with closing costs and all, I spent $43, 900.00 I got $100.00 back. So they have to get more $ than just what the offer is for, for closing cost’s.

I advise to look at what property tax’s are too, my property tax’s are more than my payment to the back each month. Crazy tax’s here.  Take into consideration that and homeowners insurance when you have to stay on a monthly budget like I do, I had to take all that into consideration before I bought the home.

I don’t know if you can see my photos on my facebook from your page, but I have before and after photos of my home there, I had to paint every room and the plumbing issues and plant flowers, there were none. but over all I love my new home and I’m very satisfied with my over all experience of buying a foreclosure.

Oh and for some reason there was not one bit of trim in one of the bedrooms or any register covers. When people lose their home some of them like to do some damage, such as what looked like brand new carpet in all the upstairs bedrooms and hallway and stairs had been destroyed, every door in this home has been kicked in, a few small dry wall repairs. Some of the things you might expect to see when looking at a foreclosure home.

If there is anything I can help with just let me know, If I think of anything else I’ll let you know. Hope this helps with your research..

Linda


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

[…] are snapping up higher-priced foreclosures. A RealtyTrac analysis found the biggest … read full news Published: Tue, 05 Jul 2011 21:15 In category: NewsTags:Luxury real estate: How to snag a […]

Posted by Luxury real estate: How to snag a deal on a foreclosure or short sale | Real Estate News | Report as abusive

[…] Original Post By Google News Click Here For The Entire Article […]

Posted by Home Flip Store » Blog Archive » Luxury real estate: How to snag a deal on a foreclosure or short sale – Reuters Blogs | Report as abusive

Excellent article! I agree with most of it and would add that there are specific areas with particular trends. Miami has a very high demand for foreclosures of ocean front properties. There are foreign investors, especially from Latin America ready to jump in when these opportunities arise, and what happens is that they end up buying above the asking price because most good foreclosures have multiple offers. I have seen many cases where a transaction with a private seller ends up closing for a lower price than a foreclosure in the same building. For anyone looking in the Miami area, www.buy-miamirealestate is a good resource with plenty of information

Posted by MiamiRealEstate | Report as abusive

[…] Source: http://blogs.reuters.com/reuters-wealth/ 2011/07/05/luxury-real-estate-how-to-sna g-a-deal-on-a-forecl… […]

Posted by Luxury real estate: How to snag a deal on a foreclosure or short … | docytydybo | Report as abusive

[…] Original Post By Google News Click Here For The Entire Article […]

Posted by Home Flip Today » Blog Archive » Luxury real estate: How to snag a deal on a foreclosure or short sale – Reuters Blogs | Report as abusive

The opportunities to snag a fantastic deal on a high-end luxury home in the foreclosure market is huge right now. It’s you got the financing and are fortunate enough to be able to take advantage of these fantastic deals then by all means, make it happen!
George Kolar
www.signaturelistings.com

Posted by SigList | Report as abusive

[…] Reuters Blogs (blog) […]

Posted by Luxury real estate: How to snag a deal on a foreclosure or short sale – Reuters Blogs (blog) | dinahbeeanggaon | Report as abusive

I’m not a lawyer and the following is not legal advice. From my own experiences I believe foreclosures can be financially related OR tax related.

If tax related, buyers should make sure additional unpaid taxes are not outstanding for those sums can include high rates of interest and fees. Tax deeds typically wipe out only the outstanding certificates posted at the time of sale, and the tax deed “buyer” is paying for those certificates but not those that are posted later, so the amounts owed may be higher, sometimes substantially higher, than the recorded price.

In addition, code enforcement liens may remain even after a tax deed is issued. Each jurisdiction may have variations in whatever laws they follow.

And, all sales involving financial distress should be considered only after substantial due diligence, and by a lawyer experienced in these matters. There are so many title problems described around the country, even with the best legal review, who knows if a distressed “seller” might end up litigating against anyone, however innocently involved, if they lose their property. Too many horror stories are out there which makes short sales and foreclosures really appealing.

In the end, as in all real estate, “a deal” is not necessarily reflected in the price, for price is not always value. The best value typically ends up being “a deal”.

Sheila Anderson
http://www.floridapropertytaxappeals.com

Posted by taxappealagent | Report as abusive

Fantastic article! How long you wait for a bank response to your offer varies from state to state and lender to lender. The Sarasota Florida market is moving! Within 30 to 90 days you can be settling into your new home that you purchased for 50% of what it last sold for.
The highest priced Sarasota foreclosure available right now is 5.9 million.
See all the Sarasota Florida foreclosures and foreclosures from other Florida counties at http://www.yourfloridamove.net

Kathy Marlowe, Broker

Posted by floridarealtor | Report as abusive

Just wondering how a new Realtor who’s been certified in short sales can even get any experience if buyers follow your advice? Just because a Realtor is new to the industry, doesn’t mean they won’t negotiate a strong deal and work diligently to serve their client. It’s the brokerage who has the experience in short sales who will guide a Realtor anyway. Otherwise, the article is good.

Posted by Bluejeans | Report as abusive

If the property title was through MERs (mortgage electronic registration) there will be problems. The MERs system was set up to defraud local communities of taxes. MERs was one of the reason banks had to use robo- singing. MERs is all smoke and mirrors.

Posted by stevadore33 | Report as abusive

Foreclosures are fantastic opportunities for foreign investors with plenty of cash and patience.

http://www.beggingmoney.com/

Posted by wilner | Report as abusive

[…] bigger – FT Alphaville The end of the home ownership “dream” – FT Alphaville Luxury real estate: How to snag a deal on a foreclosure or short sale – Reuters […]

Posted by FT Alphaville » US housing feedback loops | Report as abusive

[…] LUXURY HOMES — CHEAP! Opportunities to buy foreclosed — or soon-to-be foreclosed — luxury homes are on the rise. But watch out for the pitfalls that could sour what seems like a sweet deal. (Reuters) […]

Posted by Really? Save big buying distressed homes – Lansner on Real Estate – The Orange County Register | Report as abusive

[…] Read the full story.  Palm Springs Foreclosures and Short Sales – Desert Home Bargains: […]

Posted by Luxury Real Estate: How to Snag a Deal on a Foreclosure or Short Sale « Doug Fischer Desert Homes | Report as abusive

[…] Read the full  story. This entry was posted in Odds and Ends by admin. Bookmark the permalink. […]

Posted by Luxury Real Estate: How to Snag a Deal on a Foreclosure or Short Sale | Honolulu Homes | Report as abusive

Is it difficult to find luxury foreclosed real estate these days? Are they more common in some states than others? I would love to find me a great deal on some foreclosed homes.

Posted by JohnTaylor | Report as abusive

Why not check out homes for sale at Movoto? The site has the best demographics out there!

Posted by Charlescc | Report as abusive