So you’re looking to buy a home, crossing your fingers for a good deal, and you come across a home that was foreclosed. It appears to be a good deal because it’s lower in price than similar homes in the area, but there are plenty of horror stories out there that can make you weary to move forward with buying it. Is buying a foreclosure even worth the hassle?
Foreclosures are properties that the homeowner was no longer able to afford and has defaulted on their mortgage. The bank that the mortgage is from then legally took possession of the deed or title of the home.
The U.S. has avoided having a high rate of foreclosures due to coronavirus this year because of the eviction moratorium. In anticipation for when the moratorium is scheduled to end in a few months, online searches for information about buying foreclosures has risen.
If you are looking into buying a foreclosure as well, here’s what to keep in mind.
Pro: Foreclosures aren’t always in bad shape
Just as old homes go into foreclosure, new homes can go into foreclosure as well if homeowners run into financial trouble. This is to be expected for many during the pandemic, so you’ll likely find that some homes listed as foreclosures are in fine condition and well worth the minimal repairs needed.
If you like a home that is listed as a foreclosure, have your Realtor check out the home in person first. You’ll need to determine if there are extensive repairs needed before you start paperwork on it to see if the financials even out and that it’s still a good deal.
If state safety guidelines are still required, check out the Coronavirus Real Estate Guide on how you can view properties safely while still being able to determine if a home is right for you. Then discuss with your Realtor on how to proceed, as guidelines can always change.
Con: Sometimes foreclosed homes are in bad shape
Just as some foreclosed homes are fine, there are of course other foreclosed properties that have been abandoned or neglected, too. The previous homeowners of a foreclosed home are unlikely to have done any maintenance before moving out, and banks aren’t likely to provide the property with very much maintenance while it’s on the market (and in those months that it likely sat idle before being put on the market).
Properties like this could sit in disuse for months or years, causing damage in the form of leaky roofs and pipes, which could lead to mold, structural rot, etc.
If you’re shopping for a foreclosed home in the winter months, be aware that the home might have been winterized by the bank in order to prevent damage like frozen pipes. The downside is that in order to do inspections on the home, you may have to pay to un-winterize the home, pay for the inspection, and then have the property re-winterized.
You’ll need to have the home appraised and thoroughly inspected by professionals to work out the estimates of how much the damage of neglect would cost. From there you would need to add that on to how much you are willing to pay for the home and determine if the foreclosure is a good deal for you and your finances.
Buying a foreclosure takes a bit more time, effort and money than buying a regular home. But don’t let that stop you if you’re really interested in the home. Use this list to determine if the home you’re thinking about is right for you.
Pro: Foreclosures can be good deals
In a lot of cases, banks try to sell foreclosed homes as quickly as possible. That and, as mentioned above, the homes may be abandoned and damaged. This is why banks often list foreclosed homes on the market for sale below market value. If the home is damaged extensively, then it is worth below market value, and listed as such.
When checking out the home in person before buying, or having your Realtor check it out in person, make sure to review this post about what to check on the property that may cost some money now but will save you tons in the long run and to avoid any future regrets.
You’re also likely to get a good deal on a home if you’re shopping for one this winter since sellers are usually more motivated to sell during the colder months. Add these tips into your home buying strategy if you’re planning to buy within the next few months.
Con: Foreclosures aren’t always cheaper than regular homes for sale
Sometimes the bank that is selling the foreclosed property is not looking to sell it for the quickest deal. You might assume that they are only looking to recoup their loss for the property, but sometimes these sellers will be looking to actually profit from the sale and increase their return on investment.
When putting in a bid or planning for financing, you and your Realtor should prepare to be competitive. Since the market is more competitive for buyers these days you may even find yourself in a bidding war – yes, even over a foreclosure. Figure out the highest amount you are willing to pay for the property before putting in an offer in case you do end up in a bidding war that goes far above the listing price.
The most important steps when buying a foreclosed home successfully is to do your research and to work with a Realtor that has experience with this and understands your needs. They can help you understand the processes, put together your bid packages, recommend inspectors, oversee the inspections, and more.
Navigating the home buying process can be a daunting task. The idea of buying a foreclosed home can feel even more intimidating, but you can still have a successful home buying experience with a good Realtor by your side.
If you’re looking to buy or sell a home in the Sacramento area, contact us at Quantum Real Estate to schedule a free consultation. We’ll help you through each step of the process.