Before anyone delves into the area of real estate foreclosures, they should have, at least, a basic understanding of the processes involved with buying that property. A lot of people want in on the foreclosure bandwagon because of the enormous opportunities that exist for a great bargain, or a great return on an investment.

There are three different methods by which someone can purchase real estate foreclosures. They may be purchased directly from the bank, at auction or in a pre-sale, which takes place before the lender actually legally forecloses.

Purchasers of real estate foreclosures that were procured through a pre-sale negotiate directly with the homeowners before the official foreclosures have taken place. Even though the discount can reduce the price of the property by as much as 40% off the property’s market value, purchasing a house through a pre-sale can be quite risky. Deals frequently fall through and there can be some real headaches with title issues. Furthermore, pre-foreclosure buyers have the added costs of the real estate excise tax and the cost of an inspection. People who buy bank-owned properties have to pay the same types of fees.

Real estate foreclosures are most commonly purchased via a public auction. These homes can typically yield up to a 25% discount compared to buying a home through conventional methods. However, real estate foreclosures that are procured through auctions can have some bumps along the road. Buyers are often not allowed to inspect the prospective property’s interiors. Even though this may be the case, it is still important that prospective buyers check out the exterior of the property. Furthermore, the local building department should have copies of any types of permits that have been issues on these types of real estate foreclosures. These permits can yield information about the layouts and appearances of properties, especially if they have had any past remodeling done.

At times, real estate foreclosures can experience delays when they go to auction. These delays can be due to litigation concerning loss or bankruptcy. Once the bidder successfully wins an auction, he or she will pay for the house and then take ownership within a certain period of time. The duration of that time period varies from state-to-state.

When real estate foreclosures are not purchased at auction, they usually end up back in the hands of the lender, usually banks. Banks tend to have a lot of these REO (real estate owned) properties available and actively attempt to sell them through real estate agents. Unlike purchasing these real estate foreclosures at an auction, one can usually procure a conventional mortgage. However, one is less likely to get as big a bargain with REO real estate foreclosures than with other types of real estate foreclosures.

A foreclosure broker who has a lot of knowledge and experience with real estate foreclosures can often enter into successful negotiations with the bank. This is especially true when the property has been on the market in excess of a year.