Buy a Foreclosure or Traditional Sale?

Foreclosures use to be the choice of investors, that is prior to the housing crash. Today it seems everyone is looking for a foreclosure. However, a foreclosure may not be the best deal on the market. There are some inherent risk associated with the purchase of a foreclosure. Foreclosed properties have typically been vacant for some time and may have been left in less than satisfactory condition. Standard components such as HVAC, plumbing, electrical, and appliances are often found to be non-functional and/or non existent and  often the require more than a lipstick and band-aid make over.

Utilities have been turned off and would typically be at the buyers expense to have turned on for an inspection. The property is purchased “As Is”. In most cases you will discover additional items in need of repair or replacement after the purchase.

Purchasing a home out of foreclosure is not the same process as purchasing a home from an individual. The negotiation period can be substantially longer. Responses from the Seller can take up to 3 weeks or more at times. There are often limits on fees, closing costs, and seller contributions not found in a traditional sale. There are Per Diem charges to the buyer in the event closing is delayed. Title is transferred by a limited special warranty deed meaning the bank only warrants (guarantees) clear title during their ownership.

So is it a foreclosure a great deal? It can be as long as you go into the transaction  with a firm understanding of the risk associated with the purchase. Know your market. Establish a budget the includes contingencies for unexpected expenses (expect the unexpected). Be prepared for delays and understand all associated risks.

Ok but you can get them really cheap! Right? Sometimes, but you have to consider the additional time and cost associated with a foreclosure as compared to a traditional listing where the owner is not upside down and has maintained the property. Owners have been contending with this foreclosure market for several years now. It seems that most have a firm understanding of the market and are willing to competitively price their homes.

What does that mean for a buyer? It means you may actually be able to purchase a home that has been lived in and maintained for the same price or less than a foreclosure after factoring in all the additional expenses incurred with a foreclosed property.

If your considering a foreclosure make sure to take a good look around. Include all homes listed for sale meeting your criteria and calculate the total costs prior to making that decision. You’ll be glad you did.

If you would like additional information about foreclosures, short sales, or traditional sales…drop us a line. We’d be happy to help.