We get several requests per month from home buyers on how they can buy a home listed as a foreclosure on Zillow. Well, usually they can’t because the home is not for sale. Here’s an example:
This property is listed as a “Pre-foreclosure”. That means that the holder of the mortgage note has filed a public notice called Lis Pendens that a lawsuit has been filed.
Another point of confusion can be the price that Zillow shows. In this case, it’s merely their Zestimate, which is only a ballpark estimate of value generated by a computer algorithm. According to their data, here in Orlando, it’s off by more than 5% of the actual sales price 12% of the time. (Our internal data shows it to be much less accurate than that). Zillow shows the judgment amount when the foreclosure proceedings get to that point. That number can be $100,000 or more off from the actual value.
OK, so how does someone purchase a home that’s in foreclosure? There are three ways.
Ask the Owner
That’s right. Ask the owner if selling the home would benefit them. You could send a letter, assuming the owner still lives in the home or their current address is in the county public records, such as the Seminole County Property Appraiser’s Office. You may be able to find a phone number using various sources online. Or, if you can find the owner and they live locally enough, just knock on their door. This is how Jean started in real estate in 2001. Sometimes the owner’s address is listed in the public court records for the case.
Foreclosure Auction:
You could wait for the foreclosure proceedings to get to the point of a foreclosure auction sale. The auction is open to the public. Up until about 2010, the court would sell the home outside, on the courthouse steps. Here is how it’s done today in Seminole C0unty, FL. The county clerk of the court also publishes a list of upcoming foreclosure sales.
I know it looks easy on shows like Flip or Flop. This is not for the faint of heart or rookie home buyer. Some people who show up to bid on these homes have been in the real estate and/0r contracting business for decades. They know what they are doing, know how much to bid, and have a general idea of what it would cost to get a home into good condition.
You have to have 5% in cash at the time of your winning bid and the remaining 95% by 2 PM that same day. There is no financing, appraisal, or inspection permitted. It’s as-is and largely sight unseen. It’s a big risk for people who don’t know what they are doing.
Jean and I purchased two homes like this. One was a home run. We made some on the other, but not enough to make it worth our time, expense, and risk. Had it needed a new HVAC we would have broken even. New roof? We would have lost money. We moved on to purchasing resale homes and new construction, a much less risky way to invest in real estate.
From the Bank or Investor:
At the foreclosure auction, often the mortgage note holder itself is the winning bidder and takes ownership of the home. They have a team of real estate professionals, including contractors and Realtors as approved business partners who get the home in sellable condition and list it for sale. Once on the market, they are often called REOs, an acronym for Real Estate Owned.
Yes, foreclosures can cost less than a standard, resale home. They are priced commensurate with the condition. Even here, there’s a risk. Homes often sit unmaintained and sometimes unoccupied for years. Even a thorough home inspection can’t always reveal all the hidden and often expensive problems that can crop up.
At the time of this writing, there were 870 single-family homes and townhomes for sale in Seminole County in the Stellar MLS. Only 7 of those, less than 1%, were foreclosures / REOs.
If you are new to real estate investing or looking for a home for your family, you’re Realtor can show you everything from REOs to resale homes to brand-new construction. Then you can see the whole spectrum from brand new to bad and decide how much work you’re willing to do and how much risk you’re willing to take.
For a list of homes for sale, just fill out the form below and let us know some details of what you are looking for including geographic location and your budget. We would be happy to provide that to you, at no cost or obligation.
