Is Buying a Home Foreclosure Right for You?
Purchasing a home foreclosure has some distinct advantages, but it is also much different than a regular market sale. Buyers who are considering this type of sale may wonder what it all means. Here’s what you need to know before you buy.
For many home buyers, price and location trump the list of must haves in a home. So what happens when those elements come together in a foreclosed home? If you’ve never considered a home foreclosure, you may be wondering if it’s really much different from a regular market sale. While each method has their advantages, here are some key items to consider:
When a house sells under regular market conditions, an offer is accepted by the seller, and the transfer of title is complete when debts are satisfied, and money successfully changes hands. While potentially the most expensive, this can also be the smoothest option when considering a purchase, and puts a human element to the negotiation process.
A pre-foreclosure, or short sale occurs when the proceeds from the sale won’t be enough to pay off the sellers outstanding debts. While this may result in a better deal for the buyer, there are many lenders involved in this lengthy process. Buyers need to prepare for the unexpected, as banks may not agree to the selling price proposed, or the sellers of a short sale property may walk away if the bank fails to grant them delinquency release.
Also known as REO (Real Estate Owned), this option can be quicker than a short sale. However, it’s important to note that there are generally no disclosure statements offered. Buyers need to ensure due diligence in researching the home including searching the preliminary title report, and any permits on file with local authorities. As foreclosures are bought “as is,” lenders may not approve financing if a home is considered uninhabitable, or appraised at a value below that of the purchase price — something that won’t be an issue for buyers looking to pay cash for the home, however.
Condition of Property
More often than not, regular market sale properties will have received routine maintenance on the property, which can drastically reduce the list of major repairs required both in the short and long-term.
A short sale also has a better chance of being in better shape than a foreclosure, as the current owners are still likely making payments on the property and may have attempted necessary upkeep of the home. As with any property, a thorough home inspection is highly recommended before entering into any purchase agreement.
Foreclosures, however, often suffer from the deliberate damage of outgoing homeowners, and the effects of sitting empty for long periods of time. Damage from mold, vandalism, rot — and even squatters — are issues potential buyers may need to contend with. For homes sold in an auction setting, the ability to view a home prior to purchase may not exist, or may be hard to view. Competition for these homes is also fierce.
If a buyer is lucky enough to be able to inspect a foreclosed home, it’s likely that the utilities have been turned off, making the inspection of the home’s major components difficult.
The Bottom Line
While a short sale or home foreclosure may not be the smoothest option, the benefits of a deal may far outweigh the risk. If the location, neighborhood, and opportunity to add value through renovations is present, the extra hurdles may be justified.
The takeaway message for anyone considering a distressed home is to deal with a knowledgeable real estate agent and lenders who specialize in foreclosures and short sales. Foreclosure laws vary greatly between states, so dealing with expert professionals can help you steer clear of avoidable catastrophes and will likely lead you to a greater network of resources to make sure your purchase is a success.
Image Source: Flickr/Jeff Turner