Homebuyers eager to score a deal on a condo often flock to distress sales, such as foreclosures. A bank may repossess a condo when the homeowner defaults on the mortgage. The bank then sells the foreclosure to recoup losses, often resulting in savings to the buyer. Buying a foreclosed condo has potential pitfalls, though, including stringent financing requirements and poor property or condo association conditions. Research and inspect the condo before you take the plunge.
The first step to buying is getting pre-approved for a loan. You and the condo association must meet the lender's guidelines. Lenders want fiscally sound condo developments with high concentrations of owner-occupants and low delinquency rates. You can't control which condo complex qualifies for financing, but you can tailor your search according to your lender's requirements. For example, you can search for condos priced below your maximum sale price that have Fannie Mae or Federal Housing Administration approval, if you're using an FHA loan. Condo projects that don't meet FHA or Fannie Mae rules are known as "nonwarrantable" and aren't available to financed buyers.
Pick a Professional
You generally have two options for finding and negotiating foreclosed condos: use the bank's agent or hire your own. The listing agent who works directly for the bank that owns the condo can represent you, too. By going directly to the bank's agent, also known as the listing agent, the bank forgoes paying a buyer's agent commission, which can improve its bottom line. You may not get as much attention or hand holding as you might from a listing agent, though. When hiring a buyer's agent to represent you, interview at least two who have experience in foreclosure negotiations and condo sales. A good buyer's agent combs through listings for you and shows you only those properties that fit your criteria.
Write the Offer
There's no rule that dictates the bank's bottom line or what price it can accept. Recent sale prices of comparable condos generally dictate price. The discount on foreclosed homes is about 7 percent off of comparable listings, according to interest.com. When writing your offer, be aware that savings diminish as foreclosures sales slow and condo demand increases. Banks may price homes below market value to attract multiple offers and create a bidding war. Banks may also overprice condos, so consider making a lower offer. Base your offer on market conditions, how quickly condos in the area sell and the sale price of closed deals. Limit seller concessions, conditions or contingencies that dig into the bank's bottom line as much as possible to make your offer more attractive.
To gain approval for your loan, the condo association needs to document that it has adequate insurance, a healthy budget and reserves, no litigation and no anticipated assessment hikes. You can order this paperwork from the association -- usually for a fee -- immediately upon offer acceptance. Foreclosed former owners typically can't properly maintain or afford to fix a condo, so homes often require repairs. They are usually sold as is, meaning the bank won't repair defects or lower its price. Hire a home inspector and tradespeople to assess the extent of damage from termites, leaks and mold before moving forward with a deal. Conduct all due diligence inspections within the first few days of the transaction. Once inspection deadlines expire -- usually two to three weeks after acceptance -- you usually waive the right to ask for repairs or renegotiate if you decide to move forward. This limited time frame is known as a contingency period. You typically face a penalty, such as loss of your deposit, if you back out after the contingency period.
- Jupiterimages/Creatas/Getty Images
- Can I Buy a Foreclosed House for Less Than They Ask?
- Tips on Buying a Short Sale Property
- Ways to Buy Houses Cheaply
- Can You Use FHA Financing on a Bank-Owned Property or a Foreclosure?
- How to Buy a Home Before It Goes to the Sheriff Auction
- How to Buy a REO Property With an FHA Loan
- How to Buy an REO Property From the Federal National Mortgage Association
- How Do Real Estate Auctions Work?