How To Buy A Foreclosed Property

The Pros & Cons

The housing market is heavily saturated with foreclosed homes. While this is terrible news for many banks and former homeowners, it is a great opportunity for investors and home buyers who are eager for a great deal. However, even though foreclosed homes are typically priced cheaply, sometimes they are not the bargain they appear.

Buying a foreclosed home requires two things: research and patience. The foreclosure buyer will need to first start with research. Foreclosures are a matter of public record, and a potential buyer should first look to these records when searching for a foreclosed home. Many magazines and newsletters are also available which list defaulted properties by location. Usually the bank takes back the property at auction and then lists it with a real estate agent, so expect to purchase the property directly from the bank. These are the safest deals, anyway, as the concern for liens, tenants, and taxes have been for the bank, not the buyer.

The potential buyer should enlist the help of a real estate agent. Hopefully try to find one who specializes in foreclosed properties. Agents are very useful, as they can typically search their multiple listing service (MLS) for specifics such as whether a property on the market is bank owned; foreclosure specialists have also most likely had repeated interactions with lenders, making them experts on what can be a confusing, frustrating, and convoluted process. This process is where patience is required. You will most likely be asked to submit a bid by a deadline, and will be competing with other buyers. The bank might take weeks to respond to the offers, and communications even after acceptance may also be agonizingly slow. Be prepared for the process to take a lot of time.

The main benefit of buying a foreclosed property is the price. Foreclosure homes are typically offered for below market value, and sometimes a motivated lender might offer attractive financing terms such as low financing rates or down payments. Since usually the bank will have already completed an appraisal, the buyer will also most likely avoid paying an appraisal fee. Because the low costs associated with foreclosed homes, they are attractive options for investors and budget conscious buyers.

The main disadvantage of buying a foreclosed property is risk. Unlike traditional sellers, banks are not usually interested in making buyer requested repairs – homes are sold as-is. Once you’ve made a bid to the bank and it is accepted, you are on the hook for any repairs, and the home may need a lot of them. If the previous homeowner stopped making their mortgage payments, chances are they probably stopped making repairs, too. While sometimes these repairs minor enough that the home is still a steal, other times major problems exist that require tens of thousands to fix – problems that if you decide you can’t afford to or do not want to repair you are still legally required to disclose if you want to just throw the home back onto the market.

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