Foreclosures can be a great way to buy a home and get maximum value. A foreclosure is a legal process for a mortgagee (a lender, usually a bank) to sell, or take ownership of, a property when the mortgagor (the property owner) defaults on the mortgage.
Although you can get a great deal, foreclosures aren’t always what they seem. They can be a great deal but that is not always guaranteed.
First off, there are different types of foreclosures, there are bank-owned foreclosures and there are court-ordered foreclosures.
Court foreclosures are a little complicated. In Alberta, once the court has granted the Redemption Order to allow for foreclosure, the lender has provided an Affidavit of Value and the property is listed at fair market value. Any offers must remove any guarantees or warranties that are standard (included items, condition of the property etc) and be open for a longer period to time as the offers must be provided to the Court for review and acceptance. These offers are often unconditional as well.
After listing for a period of time, the bank or lender will apply to become the legal owner.
Bank owned foreclosures is straight forward. The bank now owns the property and it is similar to buying any resale property. You can negotiate and have conditions and proceed like most real estate transactions, just with a bank instead of an individual owner.
In a foreclosure situation, it is usually in everyone’s best interest to get the property sold as quickly as possible and this is why you can often find deals. Although they do try to get as much as possible, the bank’s goal is to cover the amount owing on the loan (any proceeds above go to the owner in a Court foreclosure).
How can you get a great deal?
- Be first in line for foreclosures – if you are interested, let us know and we can set you up to get notified of foreclosure before they hit Realtor.ca.
- Be strategic with the information available – if you find a foreclosure you are interested in, have your Realtor do some digging to find out what is owed on the property and other data to help ensure you make a good offer.
- Find out if it is a good value overall – just because it is a foreclosure doesn’t guarantee it’s a great deal. If it was purchased at the peak of the market and the market declined, there may not be a lot of equity to negotiate against. Also, the condition of the property may not always be great and there is no guarantee of condition or cleanliness upon possession so you may want to ensure you can afford some costs to fix it up, replace appliances, etc.
Banks that have accumulated sizable inventories of foreclosed properties will be more inclined to negotiate on price. The longer the bank has held the property, the greater the odds that it will seriously consider low offers. You should probably make your initial bid at a price that’s at least 20% below the current market price—perhaps even more if the property you’re bidding on is located in an area with a high incidence of foreclosures.
If you are looking for great value or perhaps an investment or flip property, shopping foreclosures might be the right option for you. Contact us to find out more or to get notified of new Calgary foreclosures on the market.