Negotiating on a pre-foreclosure property
Buying pre-foreclosure properties is probably the best approach if you mean to make a profit from investing in foreclosures. However, negotiating on pre-foreclosure properties is a delicate process and you must develop a personal relationship with the person selling the property in order to secure a sale. Some people feel uncomfortable with this door-to-door approach. If you are one of them, consider buying at auction or investing in REO (Real Estate-Owned) property.
Homeowners often receive speculative approaches from multiple investors, as well as marketing pitches from counselling agencies who are looking to solve their financial worries for a fee. This 'pack of dogs' approach may make homeowners unwilling to consider even fair offers from people who, to them, are just looking to profit from their misfortune.
If you want to follow the pre-foreclosure route, it is essential to be fair and compassionate and to show an understanding of the problems people are facing. There is no point pretending your interests are entirely selfless - you are much more likely to agree a sale if you are honest and explain how both parties can benefit from the situation.
When you make your pitch to buy the property, explain that how the sale will stop the foreclosure process. Selling the home, even at a reduced rate, will provide the homeowner with cash to pay off their outstanding debts and allow them to make a new start. It will also stop any further credit damage, which may help the homeowner obtain finance for a future home.
Most people who buy pre-foreclosures visit homeowners in person to make an offer on the property. Before you visit, investigate the local housing market and the outstanding debt on the property. Work out how much you can afford and put in a reasonable offer. If you aim for too big a discount, the homeowner may go to another buyer.
Obviously, no-one wants to lose their home, but if you can convince the homeowner that selling the home is best option they have, you may be able to arrange a mutually beneficial sale. However, you should make sure that the homeowner reveals all liens on the property as part of the purchase agreement. You should also conduct a full inspection to see if any repair work needs to be carried out - this may affect the price you offer.