11 Tips for Buying Foreclosed Properties

Here are eleven tips on successfully navigating the foreclosure market and buying foreclosure properties.

Foreclosed properties are considered nonperforming assets; hence, banks and lending institutions that own these properties actively market them the best way they can. One of the ways they do so is through discounted sales to potential homebuyers and investors, which is the reason foreclosed properties are sold below their actual market value.

But foreclosed properties may not be on most Filipino homebuyers’ purchase plans. Perhaps it is because of pity, or they feel they are taking advantage of others’ misfortune; foreclosed assets, after all, were owned previously by people who, for some reason, could not pay off their mortgage), but many Filipinos hesitate to buy foreclosure properties.

But according to Ramil Alquileta, founder and CEO of My Saving Grace Realty & Development Corporation (MSGRDC), more Filipino homebuyers are now seeing foreclosed properties in a different light. Not only are there people seeing foreclosures as an affordable means to become a homeowner, but many investors are making money from buying foreclosed properties by turning them into leasable units or saleable homes.

Opting for foreclosure properties has its good sides. Although their low price tags are undoubtedly attractive, not all foreclosures make excellent deals. Remember these eleven guidelines to help you spot and score a diamond among an ocean of foreclosed homes.

1. Know Where to Look

To find foreclosed properties, go to private companies like lending institutions, banks, and SPAV companies. SPAV companies were formed under the Special Purpose Vehicle Act of 2002 aiming to help banks shed their nonperforming assets. Foreclosure properties are also available to government agencies such as Social Security System (SSS), Pag-IBIG Fund, National Housing Authority, and Government Service Insurance System. In addition, banks and financial institutions also have a roster of accredited brokers and brokerages that help them sell their foreclosed assets. Checking out their websites will help you find the best property deals.

2. Get Your Financing Ready

As with any competition, having the edge over other buyers will give you more chances of getting the foreclosed property you want. When you have already been prequalified for a housing loan by a bank or financial institution, you will attract more attention from sellers. They will know you are a credit-worthy and serious buyer with an approved housing loan that you can use anytime. Because of this, you will have more negotiating leverage compared to other buyers. In addition, getting pre-approved helps you stick to a budget.

3. Work with a Bank or Accredited Broker

Foreclosed properties are sold on an “as-is, where-is” basis, so as a buyer, due diligence is of utmost importance. But this is easier said than done, especially if you have several properties lined up for inspection, not to mention documents and titles that must be verified. However, working with a bank or its accredited broker/brokerage greatly reduces the risk of ending up with problematic property.

Some consumers prefer to wait to make a purchase. Choosing a reputable broker or agent will help you complete the deal with fewer issues. They may assess the property on your behalf, create all the necessary paperwork, and ensure you get the best offers.

4. Attend Property Auctions

Property auctions by banks or real estate brokerages are a safe and practical way to find foreclosed properties not listed on online platforms. Attending auctions also allows you to seek an agent and discuss your purchase thoroughly. When talking to a licensed real estate broker, seek their advice and ask them to walk you through the process. 

5. Have Some Cash to Spare

The best foreclosures ignite bidding wars, especially during auctions. And to have a good chance at acquiring the property you have set your eyes on, you must be ready to make an attractive offer and deal with the payment terms. Those buyers with down-payment money ready on the spot normally win these bidding wars and may even be offered a hefty discount by the seller.

6. Inspect the Foreclosure Property

Foreclosures are almost always sold “as is, where is,” so do not hesitate to schedule an inspection. Remember, these properties have been previously owned, so expect that not all would be on tip-top shape, though most on offer during auctions may require only minor repairs. Seasoned real estate investors or flippers would recommend investing in a foreclosed property that can be fixed within 30 days or less. This way, they can sell, lease, or move into the property in a short time and avoid incurring additional holding costs.

7. Carefully Consider Your Location

Location primarily affects the profitability of any property. If the property is in a high-growth area or an area developing into one, chances are good that its value will appreciate. The same goes for foreclosures close to transport infrastructure such as expressways, MRT and LRT lines, airports, and even new townships. A data analysis conducted by Lamudi shows that the cities in the periphery of Metro Manila offer the most foreclosed properties, including those in Cavite, Bulacan, and Rizal. Within Metro Manila, Quezon City offers the most foreclosed options for real estate buyers.

If you’re buying from any of these locations, check if there are infrastructure projects currently in the works. For example, the cities of Dasmariñas, Imus, and Bacoor in Cavite and Santa Rosa, Biñan, and Calamba in Laguna will experience growth over the next few years with the upcoming Cavite–Laguna Expressway (CALAX), while San Jose Del Monte in Bulacan will surely be on people’s radar once MRT-7 is completed.

8. Have a Deliberate Offer

To ensure you will only pay what you should find the fair market value of similar properties near the house you are bidding for. If you plan to sell or lease the property right after purchase, check first the market value of similar properties. You would do well with a fast seller as it will let you avoid expenses from its maintenance, security, and tax.

9. Know Your Fees and Taxes

Other than the downpayment and the property’s selling price, there are also fees and taxes charged to the buyer. For example, buyers must take care of notarial fee, registration fee, transfer tax, and documentary stamps tax, and if you’re buying a condo or townhouse units, the buyer will also be required to pay monthly association dues.

10. Offer a Price Equal To, Better Than, or Higher Than the Indicative Price for In-Demand Properties

Banks and Pag-IBIG foreclosure properties typically use competitive bidding to sell their properties. Some banks use a “first-submit-first-served basis.” This means that the first person who makes an offer at least as high as the bank or agency’s asking price will be considered. The bank or Pag-IBIG will handle each case depending on the order they were received and only if the client who came before you failed to meet the standards during processing. 

On the other hand, certain banks prioritize proposals based on the best offer. In other words, the buyer who offers the greatest price is accommodated first. When a buyer’s offer is accommodated, the bank will review the offer form and other supporting documents before endorsing it to a higher authority. But the property would be yours if you were the only one to bid for that property and no one else did after a few days.

11. Be Patient When Waiting for the Results

It usually takes a few minutes to find out if anyone else filed an offer to buy after you did. The bank carefully examines everything before sending it to a higher position for additional examination. Depending on the bidding state, it could take a week or a month.

Buying foreclosed properties requires much effort, patience, and due diligence. But then again, so do the purchase of any type of real estate—foreclosed or not. However, acquiring a property in reasonably good condition for a bargain price should be more than enough motivation—and reward—for your hard work.

Main image via Shutterstock

This article was sponsored by My Saving Grace Realty & Development Corporation.

Founded by a once homeless man, My Saving Grace Realty & Development Corporation (MSGRDC) came into being after Ramil Alquileta realized how it was to be homeless when he got tied up with debts and then eventually had to give up his own house and almost all their properties to cover the yearlong debt he had. Because of this, he founded the MSGRDC in order to help most especially the hardworking Filipino compatriot throughout the world in acquiring the best value for money property available in the market.