Bargain or Bait?

Q. With all the troubles in the real-estate market, I've been tossing around the idea of buying a home that's in foreclosure. How can I know I'm not buying a dump?

A. More properties than ever are in foreclosure, and the number may climb-to 2.5 million by the end of 2009, according to Lehman Brothers. But auctions on the courthouse steps, where speculators pay cash on the spot for homes they probably haven't inspected, aren't the place to buy.

Better to try the aftermarket, says Lawrence Yun, chief economist for the National Association of Realtors. Some of the best deals are found in what goes by the awkward term real-estate-owned, or REO, homes. These are properties that did not sell at auction and are then put back on the market by the lender. So you can inspect them as you would any home, discover, any problems or liens, and know what you're getting into.

With the glut of properties for sale, "lenders have become very motivated sellers," says Glen Daniels, director of REO sales at Foreclosure.com, a listing service. "I'm routinely seeing 20 percent discounts on these properties."

Such online services (including ForeclosureS.com and RealtyTrac) collect data on foreclosed and lender-owned homes, then sell access to those listings for a fee, usually about $40 to $50 a month. And there are state- and region-specific sites such as foreclosuresNH.com. A real-estate agent who specializes in lender-owned properties can also help you find REO homes. Quiz any brokers you approach on how, and how quickly, they learn of bank-owned property coming to market. - Walecia Konrad

Source: AARP The Magazine, September/October 2008 (Bold print mine)