Homes in foreclosure can be an appealing option in terms of price. While there are great deals to be had, purchasing a foreclosed home isn’t for everyone. For many buyers, there is a misunderstanding about the different types of foreclosures available. Understanding the key concerns and how to overcome them, will be critical to making the best purchase possible. Here are the top three mistakes to avoid:
1. Going It Alone
One of the biggest mistakes buyers make is to consider homes in foreclosure as a do-it-yourself venture. While many home buyers can successfully work without a real estate agent to purchase a home, those who work without an agent on a foreclosure do so at their peril.
Foreclosures require specialized knowledge from an agent who can guide you through the peaks and pitfalls of the process. Conducting a search in your area for a real estate agent who specializes in these types of sales will be beneficial to you as a buyer — and help protect your interests.
A certified home inspector familiar with inspecting foreclosed homes and a real estate lawyer well-versed in the process should round out your team to ensure you are getting the best home possible for the lowest price.
2. Ignoring Hidden Costs
Focusing on the low sticker price of a foreclosed home could be risky, especially if that dollar figure is your sole deciding factor. Hidden costs can creep up even long after the sale, and create headaches — especially when there is little access to cash to remedy the situation.
It is quite common for homes in foreclosure to be riddled with physical problems due to long-term lack of maintenance, vandalism, or simply the effects of sitting empty for a period of time. Even if a buyer can conduct a home inspection prior to offer, the scope of the inspection can seriously be limited due to utilities that have been disconnected, making it difficult to assess a home’s true condition.
The best thing buyers can do is set a maximum price for offer — and stick to it. It can be tempting to get caught up in the thrill of the bid, but saving a few thousand dollars off the top can turn into tens of thousands in the long run to fix issues that were overlooked prior to offer
3. Thinking Foreclosure Always Equals Great Deal
Timing and strategy are always helpful when buying homes in foreclosure, but it is important to remember that in a saturated market, many of the homes that are available have already been passed up by investors. While this doesn’t make a foreclosed home unworthy of a bid — buyers need to be realistic in their expectations of what they will receive.
Because a foreclosed home isn’t always the most advantageous deal, getting lending pre-approval is essential in being able to complete the process. Many lenders won’t finance a purchase where the selling price is more than the assessed value of the property, so knowing where you stand before you hit the auction block is critical.
Even if you’ve found a great deal, be wary of homes still occupied by the people who defaulted on the loan. Many owners who are angry at the bank or situation end up vandalizing their home, stripping it of its contents in the process, and leaving an unwanted financial burden on the buyer.
The Bottom Line
Regardless of the risks, buyers who do their homework, employ the right professionals, and consider a home’s location, condition, and viability as a long-term investment will be able to make a foreclosed home work for them.
Image Source: Flickr/Daniel X. O’Neil
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