You said in one of your initial emails that buying foreclosures is different. Do you make an offer to the bank? [Rosemary] No. The bank employs the services of an asset management company. The A.M.C. then engages the services of a listing broker, The buyers' offer is written up and presented by the agent who is representing you (that would, hopefully, be me) to the listing broker. The offer must be accompanied by either a pre-approval letter from the bank, or if it is a cash offer, proof of funds. They forward it on to the asset management company. Is the asking price the amount of the outstanding mortgage? [Rosemary] No. Often the mortgage exceeds what the market will bear (that's why it has become a foreclosure). The price is determined by a combination of appraiser's value and the broker's opinion of value. In other words, the bank wants to sell it for as much as they can regardless of what was owed on it. Using the Palm Desert Resort as an example, what would a reasonable offer be? [Rosemary] The bank typically will not come down more than 5% off the list price in the first 30 days or so. After that, they may be a little more flexible, maybe coming down 10%. They do not bother with "low-ball" offers. If they do not get an acceptable offer they will eventually reduce the price. How much they will reduce a price is not known. Sometimes by just a little. Sometimes by a huge amount. Refer to my website. I put selling prices in so that my buyers can become educated in this regard. Can you outline the procedures and differences of buying foreclosures. [Rosemary] Some of the process has been outlined above. You need proof of funds to get started. You find a property. You put your offer in writing through your agent. The bank responds very quickly...usually just a day or two. They either accept your offer or they counter. One thing that is important to know is that with a foreclosure, it is being sold (and purchased) AS IS. The bank has no idea of the condition and so they make the buyer take full responsibility for inspections. There are no disclosures. They give you enough time (usually about 10 days) to get any and all inspections that you wish to have done (at your expense, of course), but they make no guaranties whatsoever. If you discover a problem you cannot go back to the seller (the bank) later and ask for a repair or a credit. You can quit the deal and get your deposit back, but no repairs or re-negotiating the price. The biggest differences between buying a re-sale and a foreclosure is the number of disclosures and price. In a typical transaction, the amount of disclosures are HUGE. There are so many! You just can't believe how many! And there's none in a foreclosure. In a regular re-sale, the buyer gets 17 days to do all their inspections. In a foreclosure, the number of days is less. You also mentioned "short sale"..... I think you said to stay away from them. What's involved there? [Rosemary] In a short sale, the seller still owes the property, but he owes more on it than he can sell it for. So he (1) has to prove to the bank that he's in dire straits. (2) He can't get any answer from the bank as to whether they will or will not accept less than what is owed until he actually has an offer in hand. (3) The entity the seller is dealing with is the bank (not as asset management company). They are completely overwhelmed with requests for short pays. It is not unusual to wait 60 to 90 days before you get a response from the bank on an offer. And then sometimes they just reject it. They don't even give a counter. The price listed in the MLS for a "short sale" may not even be close to what the bank will accept. Like I said, the conversation cannot even begin until an offer is in hand. So agents keep reducing the price of a house, trying to get an offer...but even a "full-price" offer may not be acceptable. At lease with a foreclosure, a buyer knows that if he offers full-price, he'll get it, and there's usually at least a little room for negotiating. In a short sale, you just never know. (4) Most short sales don't make it through the process. The seller either takes them off the market, or they become foreclosures.