3 tips on buying a foreclosed home

Sure, banks are anxious to sell foreclosed properties and you can get a decent price. Here's what you need to know before you shop.

By Stephen Gandel, Money Magazine senior writer
Last Updated: June 23, 2008: 3:23 PM EDT

(Money Magazine) -- Meet the latest desperate home seller: the bank. According to RealtyTrac, lenders repossessed 197,800 homes in the first four months of 2008 vs. 90,800 in that period last year.

Banks don't want to be in the real estate business, so sometimes they'll accept much less than you might think to get the darn things off their books - especially in markets having lots of trouble. But buying such properties has drawbacks.

Here's what you need to know.

1. Use the Web
Websites can help you find foreclosed homes. On Redfin.com, you can do a free search for so-called real estate owned (REO) properties - those for which the bank holds the deed - in Baltimore, Boston, Los Angeles, San Diego, San Francisco, Seattle and Washington, D.C. (and soon, Chicago).

Or you can locate them nationwide on Foreclosures.com or RealtyTrac.com for a subscription fee of $49.95 a month.

2. Use a broker
Forget buying directly from the bank (lenders typically deal only with pros) or at auction (you may wind up bidding more than you should).

Work with brokers; banks use them to sell most homes. Once you've identified which properties are REO, you'll know those are the ones for which a low-ball offer is more likely to be accepted.

3. Watch out for repair costs
Look for houses that have been on the market for more than 90 days and offer

Bank-owned houses typically need a lot of work: People facing foreclosure often neglect maintenance and may have swiped fixtures and appliances on their way out.

Never buy an REO property without an inspection, and be sure to factor repair and remodeling work into your offering price. According to a recent survey by Remodeling Online, replacing a bathroom alone costs nearly $16,000, on average.