However now, with a huge majority of home buyers searching online for their next home, foreclosures are very easy to find.
And, their low cost can make it seem like a great choice too.
But is it?
People typically buy foreclosed properties for two reasons:
- They’re a property investor.
- They cannot afford a more expensive property.
Is it really a great deal?
Unless you personally know for a fact that the home hasn’t been seen by a property investor chances are good that investors have seen the home and have determined it’s not worth the time, money and effort of repairing it.
Which means, of course, you should keep looking.
“As is” condition
Foreclosed homes usually sit for some time, slowly deteriorating. In some cases, the homes are trashed by vandals or even previous tenants/homeowners.
The bank isn’t in the property ownership business. They simply want to recover as much of their costs as possible.
Damaged fixtures, plumbing and electrical are not uncommon in foreclosed homes, which means repairs could be both extensive and costly.
Taking the plunge
If you decide to go ahead with the foreclosure purchase have it thoroughly inspected by a licensed inspector.
Have the offer to purchase be contingent on the home inspection so that you can back out if it won’t work for you.
In some cases, you may be able to use what the inspector discovers to get the property for less, but don’t expect it – especially in a hot market.
Using the information from the inspection, be very generous with your repair cost estimates.
The inspector should be able to spot issues that are common to vacant properties such as mold, plumbing leaks, and pest issues.
Be prepared to wait
Bank properties can take a long time to close.
Home sellers are often in a hurry to sell, so they’re motivated to provide everything needed to make the closing happen.
However, asset managers at banks tend to have a lot of properties on the books that they need to offload, so when you put in your offer, it’s just another offer…
That, and the bank may not agree to your terms or may make a counter-offer, just as in a traditional sale.
In some cases, foreclosures move as fast as traditional sales but either way, be prepared in case your deal doesn’t move as quickly as you’d like.
It may…or may not…be a great deal
Don’t assume that because it’s a bank-owned property that you’re getting a great deal.
In some cases, foreclosed properties are just as costly as non foreclosed properties.
Since the bank is trying to recover as much of their money as possible foreclosed properties could sell above market value.
So when you add in the cost of repairs, a foreclosed home in such a case doesn’t make sense.
Get a comparative market analysis from your broker or realtor to help you determine whether or not the foreclosed property is a good deal.
