Foreclosures are like a box of chocolates. You never know what you’re going to get. I’m sure you have heard plenty of horror stories from people who have bought foreclosed properties and run into big problems with their septic systems or leaky roofs that cost thousands of dollars to repair. However, there are also of Cinderella stories out there where a buyer found a little fixer upper that took no time to transform into a real show stopper. Currently if you look at the market, foreclosures are really affordable and the quality of the homes in this market have improved in the last few years. So what should you believe? Every home is different, but if you are aware of the pros and cons of looking at foreclosed homes, you can decide whether this is a market for you. Not everyone has the stomach to gamble on buying a foreclosed home. Here are some of the pros and cons of buying a foreclosed home.
Foreclosures are Affordable
In the past, a foreclosed house was 15-20% cheaper than a comparable home on the market. Today the discount on a foreclosed home is not as staggering as years passed, but it is typically around 5% which is still a decent reduction. While it is true that you would not have a complete picture of what you are getting yourself into with this property when you buy, the overall condition of the homes have improved from when the foreclosed home prices were 15-20% cheaper than the comps (comparable properties). The 5% you save on the house gives you a little extra money to cover some necessary repairs that the home might need. A big benefit of buying a foreclosed home with a 5% price reduction is that it may make it possible for some buyers to get into a desirable neighborhood that would have been too expensive otherwise. How can you tell if the home you’re looking at is a great deal? For that answer and more, check out our blog Top 6 Home Buying Questions – Answered!
Inspection is an Option
While foreclosed homes are sold as is, you may get an opportunity to request an inspection on the property before you buy it. In a typical home buying situation, an inspection gives you a bargaining chip to negotiate price and repairs of the home you are purchasing with the seller. However when buying a foreclosed home, that is not the case at all. Requesting an inspection of the property would only be for your own piece of mind, you can not use it to negotiate with the bank for a better price. The inspection gives you an opportunity to see what types of repair is necessary for the home to make it move in ready before signing the purchase agreement. The property you are purchasing might have some needs that are not obvious to you. If these needs are too expensive to repair, the house is no longer a bargain and could turn into a money pit. An inspection before purchase would give you a heads up as to what to expect to spend on this property.
Condition of the homes
When looking at a foreclosed home, you need to keep in mind that this home was owned by someone who was unable to make their monthly mortgage payments. Odds are that if they were unable to pay for their mortgage, they were also unable to pay for any repairs or regular maintenance that the property may have needed. This could mean that issues like a leaky roof, mold, plumbing or electrical problems may have been ignored leaving you, as the new owner with a significant and necessary repair. When buying a foreclosed property, you are buying the property as is at your own risk. While the home was going through the process of foreclosure with the previous owner still in the home, they could have been careless in caring for the property since they were losing it anyway. Damage could have resulted in the negligence by the owner or others and if the home was left abandoned it could have been damaged by kids or squatters.
With the popularity of house flipping shows and talk of the housing market gaining momentum, more people are showing interest in the foreclosed home market. Homes that are foreclosed upon in a desirable location are extremely attractive to buyers, creating a lot of competition. It is important to work with an experienced real estate agent and do your research to make sure you are making the right purchase. It is easy to get caught up in the excitement of purchasing a property that seems like a deal and forget that you need to leave a budget for repairs. Pay attention to real estate trends in the area and hire an agent that is familiar with buying a foreclosed home. Doing your homework will ensure that your foreclosed property is truly a bargain instead of a money pit.
The Buying Process
The process of buying a foreclosed home is long and nothing is guaranteed. Keep in mind that the home you’re purchasing is owned by the bank, it is not a person on the other end of your deal eager to get their home sold. It could take weeks for you to receive responses to your paperwork, which can be frustrating to any home buyer. Another thing to keep in mind is that just because you’ve expressed your interest in the property, the bank does not have any loyalty to you. They are interested in getting the most money as possible to recover their losses from this home. If they receive a better offer than your offer, they could cancel your contract. Want to learn more about the buying process? Leighton Realty offers a free Guide to Buying a Home.
Still Thinking About Buying a Foreclosed Home?
The foreclosure real estate market is not for everybody. A foreclosed home is appealing because you could get a great big home in a great neighborhood that could have been outside of your budget otherwise. On the other hand, buying a foreclosed property is complicated. You never know the condition and completing the paperwork can take a long time. Having an inspection conducted on the property will give you an understanding of what you are getting into with the home, and should not be skipped. If you do decide to pursue foreclosed properties, do your research and enlist a real estate agent that is an expert in this department to help navigate you through the process.