A friend of mine recently added a new addition to his family and he and his wife decided their current condo was not big enough for the growing family. They wanted to upgrade to a house and like many people who have watch one of those infomercials on late night TV he thought perhaps there were deals to be had in foreclosures sales. Looking for advise he game me a call. Given how common this situation is I thought I would share my advise with everyone.
Let me start by saying foreclosure sales in Canada are not usually what people think. The banks making the sales know full well what the real estate market is doing and will not forgo profit to make a quick sale. The process you have to go through in order to make the deal is often very cumbersome and time consuming as well. It is not the bargain bin type shopping a lot of people are looking for.
There is however a relatively simple way to bargain shop for real estate which can accomplished by gathering a small amount of intelligence any good realtor can get for you on places you are interested in.
The first thing to look for is when the current owner purchased the property and for how much. You are looking for owners who have had the property for a number of years and purchased it when the market was priced much lower than it is now. People becoming very emotional when it comes to selling their home and most are really uncomfortable selling for less than they paid. This is easy to avoid by dealing only with longer terms owners.
The second thing to look for is what mortgages have been registered against the property. There is a record kept of every transaction in which the property is used as collateral. You have done your homework in step one and found a house on the market for $600,000 in which the owner purchased it in 1995 for a mere $200,000 you are getting excited. However, if you learn the property was re-financed in 2009 for $550,000 so the owner could invest in a hot stock tip or a lakeside cabin you are not going to be able to negotiate the bargain you are looking for. Most people are completely unable to sell a property for less than they owe the bank (the bank can veto the sales) so do not even bother trying. Knowing all of the transactions will allow to you get a pretty accurate idea of how much equity the current owner has in the property. The more equity that exists the lower you can offer with a chance it will be accepted.
Once you have identified houses with a long term owner, who purchased the house for far less than the current market value and you know he has not used it as an ATM to refinance and take out money you are close to the bargain you are looking for. Now you want to try and uncover what is the motivation for selling. Perhaps the owner has been transferred for work and needs a quick sale, perhaps the couple is going through a divorce. With a little digging you can uncover the motivation and thus offer terms that appeal to the seller. You can often get away with paying far less than market value by simply offering to close quickly. Offer to close on the transaction the same month, the lure of fast cash can often get people to simply want the deal over with and take far less than they would get if they waited. We live in a society of instant gratification so use that to your advantage.
Finally with all this intelligence in hand find a realtor who is aggressive and willing to write multiple offers and do the homework for you. Some sellers will take offence to you making a low offer, accept this and move on. To use a fishing analogy, the more lines you have in the water the more likely you are to catch a fish. It also gives you leverage on the sellers. If they know your offer may go away because you are also bidding on other places they may just take the offer right away to lock your cash down.
Let me close by giving you one simple little piece of perspective. If you have a standard 30 year mortgage for every $10,000 you save off the purchase price you are saving yourself $50 per month for 30 years. I am sure you can think of better things to do with your money than add it to the bottom line of our already profitable banks. There are deals to be had in any market if you know some of the factors to look for.
Cheers,
Chuck