Are you in the market to buy low priced distressed properties? There are some things you should know about buying foreclosures in Chicago.
Kinds of Foreclosures
First of all, it is important to understand that foreclosure is a process. The first step is called pre-foreclosure. This means that the property is in default and the bank may or may not foreclose on the property. The second step is a short sale. This is where the owner is trying to sell the property before the bank forecloses, but the market value is a little short of their balance due on the loan. Depending on the bank, they may or may not accept offers less than the balance due at this point. If the owner can get the bank to short sell, it is much better for their credit. The third step is the foreclosure auction. This is when the bank is trying to get the most money for the property in a short amount of time. The fourth step is an REO, which stands for real estate owned. If the property does not sell at auction, the bank then repossesses the property and places it on the market for sale.
Highest and Best
In a competitive foreclosure market, swift action and strategic bidding are essential to secure a property. If other foreclosures are selling rapidly, it indicates high demand among buyers. To increase your chances of success, consider starting with an offer close to or at the asking price, especially if you’re keen on a particular property.
When facing multiple offers, you might need to offer above the asking price and minimize contract contingencies to stand out. This approach demonstrates strong interest and financial readiness to the seller, potentially increasing your likelihood of acceptance.
Location and property amenities play significant roles in foreclosure sales. Homes in desirable areas or with attractive features tend to attract more interest and sell quickly. Understanding these dynamics can help you make informed decisions and position yourself competitively when pursuing foreclosed properties in Chicago.
Navigating the foreclosure market requires diligence and preparedness to act swiftly and decisively to seize opportunities as they arise.
Prepare Yourself for “As-Is”
When purchasing a foreclosure, it’s important to understand that the seller is typically a bank, which typically means there won’t be a traditional seller who makes repairs before closing. Banks aim to maximize their return on investment and may not address any issues with the property before selling it.
Including an inspection contingency in your offer is crucial when considering a foreclosure. This contingency allows you to hire a professional inspector to thoroughly assess the property’s condition if your offer is accepted by the bank. A comprehensive inspection report will provide insights into any potential issues or repairs needed, helping you make an informed decision about proceeding with the purchase.
By conducting a thorough inspection, you can understand the property’s current condition and any associated risks before finalizing the transaction. This knowledge is vital for planning and budgeting for any necessary repairs or renovations after closing.
Navigating the purchase of a foreclosure in Chicago requires careful consideration and preparation, including leveraging inspection contingencies to protect your interests and ensure you’re fully informed about the property’s condition before committing to the purchase.
Funding Your Foreclosure
In Chicago, many buyers opt to purchase foreclosures with cash due to their often discounted sale prices compared to market value. Cash transactions are preferred by banks for their simplicity and speed in closing deals. However, several banks do offer financing options for foreclosure purchases, but these typically require a property appraisal, which can delay the process.
When competing against cash offers, it’s crucial to ensure your offer is competitive. This includes offering a price that reflects the property’s value and potential, backed by solid financing approval. If the appraisal of the foreclosure property comes in lower than your offer price, you may need to cover the shortfall out of pocket to proceed with the purchase.
Navigating the foreclosure market in Chicago involves understanding these dynamics and preparing accordingly to position yourself competitively against cash buyers. Working with a knowledgeable real estate agent and securing pre-approval for financing can strengthen your offer and increase your chances of successfully acquiring a foreclosure property, even in a competitive market environment.
Additional Costs
Buying foreclosures in Chicago may come with additional costs above and beyond the purchase price and closing costs. If the owner couldn’t make the mortgage payment, you can probably assume he or she did not pay the real estate property taxes or homeowners association fees if the foreclosure is in a community. You might also become responsible for any utility bills, home equity lines of credit, or other liens on the property. Make sure the title company takes these factors into account when preparing the title commitment.
You will also have to take into consideration the additional cost of making the necessary repairs or cleaning when you buy a foreclosure. There is no cleanup requirement when these properties are seized, and the previous owners might be a little upset about the bank foreclosing on them and take it out on the property. Repairs to the home might also increase the assessed value and raise the taxes.