Issue Date: February 8, 2008

Beware of Potential Pitfalls

By Jody Zink
Licensed Realtor in Ohio & Michigan

Unless you live in a cave, you might have heard about homes going into foreclosure in record numbers. As a result, I continue to receive calls from clients--namely investors, many of whom flip or rent real estate for a living, looking for bargains. Some of my callers, however, are beginners--and are quite honest about asking for help when starting out. This article is especially for them.

If you've decided to give real estate investing a try and you're financially prepared, know that if you're going to purchase a HUD or bank-owned property, you'll need to show a letter of lender pre-approval or proof of cash funds up front. This is a good idea so you know what you can afford. A seller will want to see it, plus it strengthens your offer. Your Realtor can help if you're not sure where to start.

Once you've got the pre-approval, it's time to browse. Spotting the right property can take time, but--and this is important, sometimes it doesn't. Don't dismiss a potentially good deal because you don't feel you've been searching long enough. Work the numbers. Ask your Realtor to advise you. He or she can also check the market's pulse by comparing other similar properties recently sold giving you more information to make a good decision on whether to pounce.

Let's say you decide to have your Realtor write an offer on a bank-owned property. In most cases, the seller (bank) is given a deadline to respond. Here is a common pitfall: Bank does not respond in a timely manner. While this can infuriate an honest to goodness buyer, it's important to know, this is not uncommon. Banks are notorious for this. One reason it takes so long for lenders to respond to an offer is because of bank's bureaucratic nature. There are many layers before getting to the decision maker. Plus, if the bank has outsourced this whole process to an asset management company, there's another layer of red tape. Add to this the hundreds of already foreclosed homes the bank is trying to sell and you can imagine the piles of files on someone's desk.

I've seen a seller respond as quickly as within an hour. I've seen sellers take a month. Patience during this time will serve a buyer especially well.

Once the seller does respond and an agreement is reached, expect a bunch of paperwork. That's because almost all seller/lenders insist on certain addenda to the purchase contract that must be signed and submitted---often before the seller will even sign the contract.

Also, under Ohio's Statute of Frauds, the lender--like any seller, isn't bound by the purchase agreement until they've signed it. That's important to know so that a buyer isn't caught off guard when a lender revokes a verbal deal after weeks of negotiation because they've received a higher offer from another buyer.

Despite some of the bumps, real estate is considered one of the safest long-term investments. We know, there are no guarantees, but historically--the world's wealthiest people--typically aren't renters. Real estate ownership adds net worth.

Now to take advantage of one of the greatest long-term wealth-building vehicles, you have to be in the market. Some are waiting for the market to hit bottom. My opinion? With interest rates at historic lows and prices in decline, you might have already missed the best day to buy.

Jody Zink is a licensed REALTOR in Ohio and Michigan with the Loss Realty Group. Her column appears every other week in the Toledo Free Press. She can be reached at jody@jodyzinkrealtor.com or 419-725-1881.