So You’re Interested In Buying A Foreclosure In St. Louis?

Most buyers that I begin working with in the current market are interested in buying a foreclosure or a short sale that they can pick up cheap.  However, once we get into seriously looking their tunes often change.  This is the case regardless of what price range and what type of property they are looking for.  The reasons vary from buyer to buyer but the most common reason….these properties need a lot of work!  This goes without saying and most people realize this going in but once we begin to add up the cost of repairs, down payment, closing costs, along with inspections, costs of moving, buying new furniture etc people begin to see that the foreclosures and short sales are priced the way they are for a reason.  Its important to note that nearly all foreclosures and short sales will be sold as-is with no inspections or repairs to be paid for by the seller.  You, as the buyer, have every right to perform inspections to protect yourself and know what you will be getting in to.  But the bank or the under water seller won’t fix any of the problems you find.  Hence the discount for the property.

Another reason people often give up on looking for a foreclosure is that the inventory will be really limited in the most desirable areas.  For example, in St. Louis it will be tough to find more than a handful of available foreclosures in Clayton or the best parts of Webster Groves and Kirkwood.  The media would like everyone to believe that there are 2 or 3 foreclosures on every block but some zip codes are hit harder than others.  There some zip codes in North County and South City that have over a hundred foreclosures in them currently.  At the same time there are zip codes in the Central Corridor and South County that have one or no foreclosures in the entire zip code.  In short, its difficult to find an updated 3 bed 2 bath house in a great neighborhood that is bank owned.  Short sales are more prevalent even in good zip codes because the market is down as a whole over the past 4 years and short sales are often the only way to move a property.  In these established areas the inventory of short sales will outnumber the foreclosures but there still aren’t many.  The homeowners, like the neighborhoods themselves, are more established.  They have equity in their homes, or savings to help them along if they lost their job.  Value has held better than the harder hit zip codes.  If you can find a short sale in one of these areas it could be a great option.  As a rule, short sales will often need less work than a foreclosure.  This is because the bank never took possession of the property, evicting the former owner, and leaving the house vacant for months on end.  While a house is vacant it is often vandalized, pipes freeze, and maintenance halts.  In most short sales these aren’t issues because the homeowner often stays in the house until the closing like a conventional sale.  They continue maintenance if they can afford to do so and in turn the property will be in better shape for the buyer when they move in.

While short sales are often good affordable options many buyers still choose to pass on them for one reason.  That reason is time.  It can take several months get a short sale approved and closed.  It differs from bank to bank.  While GMAC and Wells Fargo have good reputations for speedy approvals its still usually 60-90 from an accepted contract between buyer and seller to a closing.  This is best case scenario.  If you are going after a house that requires short sale approval from Bank of America or Chase then be prepared to wait 4-6 months for an approval at best.  Let me stress this…if you have time to wait for an approval these can be great deals, but if you can’t wait do not submit the offer in the first place.  There is nothing worse than a buyer who pulls out after 90-120 day because they’re offer hasn’t been approved.  This simply is not enough time to get through to the bank.  If you pull out after this time frame you put the seller at risk of foreclosure as well.  The reasons are usually similar to why buyers pass on short sales to begin with…have to be out of your apartment, landlord won’t let you go month to month, interest rate lock is expiring.  These are all valid reasons to be wary of the length of time it takes to get a short sale approved.  Know that if you are willing to stick it out that you will probably come up with a great deal.  Also, be aware in short sales just because you have a contract with the seller that doesn’t mean the offer will be approved at that price.  The bank reserves the right to reject or counter your offer.  This doesn’t mean you can’t still come up with a good deal, but you need to be flexible with your offer.  Know going in that the bank will try to counter you up even though the seller accepted your contract.  If you haven’t left some room to come up you are setting yourself up for disappointment.

Another word to the wise…make sure you have the right kind of financing in place!  If the house you want doesn’t have copper, and/or a kitchen, and/or a furnace you will not be able to use FHA or conventional financing in most cases.  You’ll either need cash or a construction loan that takes A LOT of planning prior to submitting an offer.  If the house isn’t livable you probably won’t be able to finance it.  There are a few exceptions.  For example, one of my lenders right now is working on an FHA loan for my buyers even though the house has no copper.  He is able to make arrangements to escrow the funds for repairs and have the work performed after closing.  He is able to make this work when the house only needs one or two minor repairs to make the house livable.  He is the only lender in town that I am aware of that can do this on an FHA loan, the kind of loan that only requires a 3.5% down payment.   For more info about this loan feel free to contact me.

I hold a designation called CDPE which qualifies me as a certified distressed property expert.  Short Sales and foreclosures are transactions that I specialize in and have all the training to make sure they close.

Foreclosures and short sales aren’t for the weak of heart!  But if you know what yo expect and can handle a degree of uncertainty you can make a great buy on your new home or investment.   Call or fill out the contact form below if you are interested in more information about buying a short sale or foreclosure.