5 Common Misconceptions About Buying Foreclosed Homes
Published December 28, 2016
Foreclosed homes are not all the same. When it comes to buying foreclosed properties, you should know the truth before you decide on a property to buy.
Buying a foreclosed home can be a difficult, especially since foreclosed homes often come along with additional worries that might not affect regular homes. Although buying a foreclosed property might be a good deal in some cases, in others it is not. Here are some of the most common misconceptions about buying foreclosed homes.
When you decide to purchase a foreclosed home, it is important to make sure that you are doing it for the right reasons. Many people who lack experience with buying and selling real estate automatically believe that foreclosed homes offers the best deals. If you have never shopped for a foreclosed home before, you should understand that the majority of foreclosed homes are not good deals.
However, for a real estate investor or a first-time homebuyer with few other options for purchasing a home, a foreclosed home might offer an opportunity. Here are some things to consider if you are considering purchasing a foreclosed home to help you separate the truth from the misinformation that is out there.
Every Foreclosed Property Is a Good Deal
Many homebuyers and would-be real estate investors mistakenly believe that every foreclosed property is a bargain. This is not true for a number of reasons. First, the home may have had significant issues prior to the foreclosure that the previous owner never bothered to address. The home may have structural, plumbing, electrical or other issues that could be quite costly to fix. The original homeowner likely will have never dealt with these issues as a result of already struggling to make the mortgage payments on the home.
“You should also aware that banks almost always have addendums to a sales contract that are designed to protect their own best interests. When you purchase a foreclosure it is always on an “as-is” basis.” says Monte Mohr, a real estate agent based in Nashville, Tennessee. “That means that any repairs that must be done to the home, and any outstanding liens of the property, become your responsibility. In simple terms, the bank will assert that they have no knowledge of the condition of the property and then they will relinquish all accountability for any necessary repairs/liens – including the cost.”
Every Foreclosed Property Sells for a Low Price
While some lenders may price REOs so that they will sell quickly, this most often occurs in the cases where the home has been in the bank’s portfolio for some time. In fact, the majority of foreclosed properties actually sell for only slightly less than market value. With only a slight discount on market values and the probability that the homes will need significant repairs, there is a high likelihood that you won’t end up with as much of a deal as you thought you might in buying a foreclosed property.
The bank is out to make as much money as it can off of the bad investment. Therefore, it is highly unlikely that the home will sold at a low price just to give you a deal. If you want to know how the home stacks up against other homes in the area in terms of price, have your real estate agent do a comparative analysis of the foreclosed home with other properties in the area.
Every Foreclosed Property Is in Bad Shape
Just because a home has become a foreclosed property does not mean that it is in poor shape, Many foreclosed property have been vandalized, neglected or were in poor condition to begin with. However, that is not the case for every foreclosed property. In addition, some lenders may opt to renovate a property before auctioning it off to potential buyers.
Foreclosure Auctions Always Provide the Best Discounts
On occasion lenders host auctions to sell foreclosed properties in their portfolios. The common misconception is that these auctions always provide the best deals. An auction by nature means competition. With the popularity of foreclosure auctions on the rise, this increased competition can change bidding on a foreclosed property from a sure bet to just a possibility. In addition, you will also need to make sure that you have done your homework carefully to ensure that you don’t bid more than you can afford to pay while in the heat of bidding competition.
One way to beat the competition is to get in touch with a real estate agent. “A lot of these Realtors have a long-term relationship with these banks, and they know of listings that haven't even come on the list yet,” says Elaine Zimmerman, a Memphis real estate investor and author. “Call them about the listings that you're interested in, but also ask them about listings that may be coming up because sometimes it may take a day or two or even a week before a listing actually comes onto the database.”
You Have to Buy a Foreclosed Property to Get a Good Deal
If you are searching for a foreclosed property simply because you want a good deal, it is important to remember that great deals can be found in almost any market. You also don’t need to purchase a foreclosure to get a good deal. If you don't have much experience in buying homes or you don't have the skills needed to do renovation work, it is probably in your best interest to avoid purchasing a foreclosure.