Foreclosed or repossessed homes might have bargain price tags, but remember, the person living there has probably been in financial distress for quite some time. Such properties are often more neglected and in greater disrepair than typical listings. No wonder they're often called "distressed properties."
Worse yet, they are often sold "as is," which means you aren't protected from problems you eventually discover.
If you decide to look at distressed properties, get help from a real estate agent knowledgeable about foreclosures, auctions, and short sales. Bargains can be found, but only if your agent has the sophistication to deal with the inner workings of this esoteric sub-market.
You might be able to bid low or negotiate concessions from the seller, in a market where homes are tough to sell. But you'll need to do so intelligently, based on tailored market research. Don't, for instance, make the mistake that some would-be buyers have, and alienate a prospective seller by offering an insultingly low sum for the property; one that suggests you don't have the market savvy or financial wherewithal to be worth negotiating with further.
Research comps and just-closed sales. When ready to make an offer, it's not enough to gather a stack of comparable sales or "comps" (recent sales of homes as identical as possible to the home you want to buy). Your agent should also get the list prices of similar homes currently for sale and the sales-price-to-list-price (SP/LP) average of just-closed sales. If list prices are trending lower than recent comps and the SP/LP average is below 100%, you have a good shot at getting a lower-than-list-price offer accepted. Your agent should be able to help you make market-based calculations and zero in on a good target number.
Seek monetary concessions. You can ask the seller to cover some of the transaction or other costs you incur in a home sale (on top of submitting a reduced-price bid). Virtually every cost is open to negotiation, including who pays title insurance, closing costs, transfer taxes, and even the points on your mortgage. Motivated sellers also have been known to make the buyer's first few mortgage payments, pay a year's worth of homeowners' association dues, cover property taxes or insurance premiums, and even help with the down payment or financing a second mortgage.
Ask for tangible things. If you're dealing with a professional developer, they've been known to throw in new kitchen appliances, a flat-screen TV, a fuel-efficient Vespa, a cruise or other vacation, or a golf cart. If you're dealing with an individual homeowner, you might ask for furniture or equipment that's already in the home and fits perfectly, or for the seller to pay for your moving expenses or a home warranty.
To learn more about the ins and outs of buying a home, get Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Ann O'Connell, and Marcia Stewart (Nolo).
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