Foreclosed or repossessed homes may have bargain price tags, but remember that they may also be more neglected and in disrepair than typical listings. That's part of why they're 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. There are bargains to be had, but only if your agent has the sophistication to deal with the inner workings of this esoteric sub-market. (To learn more about shopping for foreclosed homes, read Nolo's article Buying a Foreclosed Home: Your Way to Break Into the Real Estate Market?)
Although you may be able to negotiate concessions from the seller, you need to do so intelligently, based on tailored market research. Don't make the mistake that some would-be buyers have and alienate a prospective seller by offering an insultingly low sum -- one that suggests you don't have the market savvy or financial wherewithal to be worth negotiating with any further.
Research comps and just-closed sales. When you're ready to make an offer, it's not enough to gather a stack of comparable sales (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 comparables 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.
Think twice before accepting a home-improvement offer. Some sellers may try to entice you with a new kitchen or bath. Unless you're dealing with a professional developer, however, it's a better idea to get a cash concession worth the cost of the improvement. Your tastes may not be the same as the seller's, and choosing your own contractor for home improvement work prevents muddying the transaction with any construction complaints.
Ask for tangible things, instead. Instead of home improvements, you might ask for things you need (or just want). 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, 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, Alayna Schroeder, and Marcia Stewart (Nolo).
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