Houston Housing Market

Most people in the Houston Metro Area have heard that buying a foreclosure can provide you with a fantastic deal on a home.  What most have not heard is that it can just as easily cause you to go broke.  These scenarios are equally common in the Houston Housing Market.  Many of the homes in Houston that we are seeing go through the foreclosure stage are being torn up by the owners just before they are forced out.  Legally the lender has no way to stop it.  This is because there are no laws that prevent someone from damaging their own home. Until the home has gone through the entire foreclosure process, it still belongs to the individual who is in default (the act of not complying with the loan terms).

In this blog post, we will discuss the steps a Houston Homes buyer must go through to assure that they do not end up paying more than the home is worth after the necessary repairs are completed.

1.      The first thing a buyer in the Houston Homes Market should do is to educate themselves on the different types of foreclosures that exist on the market. 

·         Pre-foreclosures – Properties termed as pre-foreclosures are not actually foreclosures, but are homes that have mortgage loans that are in default.  In most cases, these properties provide the very best buying opportunities, however, they also have the most competition and are the most difficult to negotiate a contract on that will close.  You can get a list of these properties from your local title company that is usually updated every couple of weeks.

·         Sheriff Sale Properties/Trustee Sale Properties – These properties are those that did not get picked up during the pre-foreclosure period.  This can be for many reasons.  Sometimes it is because the owners are so distraught that they stay in denial and believe that things will get better or think that it cannot really be happening to them.  Sometimes it is because the homeowner is in over their head (owe more than someone will pay for the home) and the bank is too disorganized to arrange a reduced price prior to the foreclosure process being completed.  You can find these properties at court house auctions.  It is common for people to pick these properties up for bargain basement prices, however, it tends to be the riskiest purchase one can make.  In most cases, the property must be purchased site unseen, so for the average home buyer this is not a very good choice.

·         REO – This stands for Real Estate Owned. This designation is given, because they are properties that are owned by the lending institution.  These Houston Homes are properties that no one was willing to bid the lender’s minimum bid amount on.  Therefore, the lender bids on them to assure that they receive as much of the dollar amount they are owed as possible.  These properties have two subclasses that are very important to note, as one subclass carries a substantial amount of risk.

§  Properties Foreclosed on via Judicial Foreclosure – These properties provide a unique form of risk that many people overlook.  This risk is due to a law that exists in many states.  That is, the right of redemption law.  This law gives the previous owner who was foreclosed upon a one year time period in order to come up with the money that they were delinquent to the lender for.  This can leave the person who bought the home high and dry because their once believed great deal is ripped out from underneath them.  In most cases, this does not occur because often times, the previous owner has no way to accumulate the necessary funds to make this an issue.  However, the Houston Homes market does on rare occasions see this occur. 

§  Properties Foreclosed on via Trustee’s Deed – This is becoming the most common form of foreclosure in the Houston Housing Market, because it provides the lender the greatest safety when making a loan.  It does this by providing a quicker foreclosure process and by allowing for higher revenue from the sale of the property, because there is less risk to the buyer.

·         Tax foreclosures – These foreclosures are very similar to that of those above the only real difference is that the foreclosure process is initiated by a taxing entity. 

2.      Hunting for foreclosures on your own can be a real chore, discouraging the buyer from continuing through the steps needed to seize that great buy.  That is why it is best to either ally yourself with numerous bird dogs or hire a real estate agent that is familiar with the Houston Real Estate foreclosure market.  In most cases for the average home buyer, it is very difficult to organize a set of bird dogs (people that keep a look out for properties that are in distress).  The biggest reason being that investors have usually already recruited most members of a community that are willing to provide this service. This fact makes it much simpler to hire a good agent with foreclosure experience to help you make your Houston Homes foreclosure search.

3.      Picking an appropriate agent can be a difficult job.  The type of agent that will be a good fit for helping you find a foreclosure and then procure the deal you need will not be found by traditional methods of selection used by buyers.  Most of the time, buyers pick an agent by meeting them at a Houston Open House, a referral from a family member, or calling a Houston Real Estate office and meeting with the person on floor duty.  Each of these has their own reason for more often than not providing you with the wrong agent for your needs.  You can find the right agent by calling different Houston Real Estate brokerages and asking to speak to the broker.  While conversing with the broker, ask them if they have anyone that specializes in pre-foreclosures or short sales.  If the broker hesitates, you know he does not have a good fit for you.  Meet and interview at least three agents from three different brokerages before deciding on one agent.  You can tell whether they would be a good candidate to represent you by asking them how many short sales they have successfully seen to close.  Ask the agent for a list of contractors they refer and interview the contractors to get a feel of how many restoration projects they have taken part in.  A good agent will know good contractors.  Ask the agent to provide pictures and minimum bid prices for Houston Homes currently in default.  Ask them to describe how they go about negotiating on REO properties.  These questions and requests will help you determine who the best agent is by observing how comfortable they are in meeting your requests or answering your questions.

4.      Once you have picked the best Houston Metro Area agent possible, it is time to begin the search. Have your agent approach individuals listed on the report obtained from the title companies. Ask your agent to do advanced searches in the MLS for the terms short sale.  These are a couple of the avenues that can get you an opportunity to pick up a home that is in the pre-foreclosure stage.  These Houston Homes allow for some of the best deals available, and as a result, should be where the majority of the energy is spent during your Houston Homes Search.  You should also be receiving daily updates of new REOs as they come onto the Houston Housing Market.  It is very important to receive these updates daily as the best REO deals go fast. If you have the time available, you can go and check out the Houston Homes Market sheriff sales at the court house auctions. Just be very careful at these functions to make sure that you do not end up getting caught up in the heat of the moment. Many inexperienced buyers end up paying far too much for their Houston Homes purchase, because they get caught up in having to have a certain Houston home.

5.      O.K. you found your home, now what do you do. If you hope to obtain your Houston Housing Market bargain, you need to accumulate a great deal of information on this home fast. Have your agent take pictures of the property showing it in the very worst possible light.  Request that they focus in on the defects of the Houston Home. Have at least three contractors come in and give you a bid on everything that is wrong.  Put the bids together with the pictures in a three ring binder.  In this binder, also provide comparables of properties that were not distressed sales. Have them be the roughest of the properties sold. Take the average value of these comparables and subtract out all the contractors estimates and make your initial offer at no more than 80% of your calculated value.  Have an excel file detailing the calculations at the end of the three ring binder.  Submit the three ring binder with your offer. Request that your agent try to present the offer if at all possible. If you do not receive a response (this is very common) within three days the lender is most likely sitting on your offer. 

6.      If you believe the lender is holding out for other offers at the end of three days, then you should revoke your prior offer and put in a new offer that uses an escalation clause.  An escalation clause is legal verbiage that says your offer will be increase above any other offer by some dollar amount. This final dollar amount should be capped at a value that does not exceed the value of the comparables less the contractor repair estimates.  This assures that you do not over pay for the property.

7.      You can help sweeten your offer without overbidding by removing all contingencies from the offer. If you are unwilling to do this, then purchasing a foreclosure might just not be the way for you to go. As contrary to popular belief, the best priced foreclosures go rapidly. Be prepared to have to submit offers on 4-6 properties before having your offer accepted. One of the keys to making a successful deal on Houston Housing Market foreclosures is not to fall in love with any single property. 

Good luck in your Houston Homes Search, and I hope that you found this article helpful.  If you enjoyed reading this article or it helped you understand the foreclosure market better, please sign up for my feedburner RSS feed to your email.  You can find the sign up box in the left hand navigation.  Please feel free to comment on this article, as I love to get feedback. I provide “do follow” backlinks to those who take the time to comment.

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This entry was posted on Friday, August 8th, 2008 at 2:21 am and is filed under Buyer Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.