It seems that everyone in the market to purchase wants to buy a foreclosure in Birmingham. Even first time homebuyers seem to think they have to buy a foreclosure in order to get a great deal. While there are certainly some great deals out there and foreclosures continue to represent a large segment of the market, one must understand the landscape of this sector before buying.
Before you buy a foreclosure in Birmingham, doing a little research can ease the pain and help manage expectations. First, there is the 12 month right of redemption which I will only briefly touch on here. People that have lost a home in Alabama have the right for 12 months to "redeem" it if they pay all balances due plus interest, penalties and "normal" maintenance. While the percentage of people that actually redeem is very low (1% or so), when you buy a foreclosure in Alabama, you are taking a risk that the previous owners will get it back. Even though it is unlikely, it is a reason for a partial discount from market. Keep in mind "normal" maintenance (as I call it), doesn't include improvements. If you "improve" the property during the 12 month right of redemption, if it is in fact redeemed, the prior owner has no obligation to pay your for it! When you buy a foreclosure in Alabama, work with an experienced agent and consider consultation with a good closing attorney to fully understand the risks.
For the first time homebuyer, before you buy a foreclosure (or before you begin the process), take time to understand the financing piece. If you have minimal funds for down payment / closing costs, you are limited in the number of available properties. First of all, given that you have minimal funds, you are not going to have a great deal of money to (1) buy a foreclosure and (2) fix it up due to deferred maintenance. Foreclosures are typically in poor condition for the most part necessitating investment in the property for painting, carpet, appliances, roofing, etc... that put a huge strain on any budget. And don't think that you can negotiate for the foreclosing lender to fix it up; they just won't do it most of the time. In many cases when you look to buy a foreclosure the amount of repair work is so great that a first time homebuyer can't even get financing since the lender won't finance a property with significant deferred maintenance. Also keep in mind, as a first time buyer with limited financial resources, your negotiating power is not that strong, especially when competing for a nicer home new to the market and priced right; you're competing to buy a foreclosure against potentially cash rich investors and the bank knows it.
Okay, if you aren't a first time homebuyer (and have some cash) and want to buy a foreclosure, consider that once you find a property you like, making an offer necessitates being patient. The seller (bank) likely will take 1-2 weeks before getting your answer. That is just the way that it is. And the old mindset of offering less than the list price may or may not be the best way to go. Again, engage an experienced agent when you think you want to buy a foreclosure and trust them! Experienced agents know the market and can give you feedback on what to offer. While it is your decision, treating your agent as an administrative offer writer won't do you a whole lot of good as you may end up making several offers and not getting a counter. Especially if you find a foreclosure in good condition that just hit the market,
The best way to get a good deal is to buy a foreclosure, right? Not necessarily. There is still a tremendous amount of inventory in the Birmingham area (see my previous blog entry). The old supply and demand principle applies; with excess inventory, there is downward pressure on prices. Added to that is the downward pressure created by the foreclosures themselves. In short, there are great buys throughout the Birmingham market and non-foreclosures are normally in better condition and involve less risk than when you buy a foreclosure. So don't limit yourself to thinking that buying a foreclosure is the absolute way to go to get a great deal!
For free lists of foreclosures (with photos) for specific areas, click buy a foreclosure. You don't have to pay for a list! I'll gladly send you a report via email under whatever criteria you like with no obligation.
