6 Things You Need to Know about Buying a Foreclosure
We know that homes aren’t cheap these days. This is why buyers with an eye for real estate bargains might consider buying a foreclosure. Foreclosures are cheap and banks are desperate to be rid of them. What could go wrong, right?
What many people forget is that buying a foreclosure is a process. It takes more time than buying a regular home and, in certain situations you may end up paying much more than the initial price.
If you have your eyes set on a foreclosure, read on to find out what to expect.
6 Things You Should Know before Buying a Foreclosure
We understand why a home well under market value is appealing. But don’t let the price distract you from reading the fine print. Arm yourself with knowledge before putting an offer on a foreclosure. It’s better to be over-prepared than under-prepared!
1. Understand the Different Types of Foreclosure Properties
There are 4 types of foreclosures:
• Pre-foreclosures or short sale
• Real estate owned (REO)
• Government owned
In a short sale, the previous owner has control over the home since he/she is provided with a grace period to pay the default amount.
Auction foreclosures tend to be overpriced because the sellers always go for the highest bidder. Plus, they are cash-only, which can limit the type of bidders severely.
Government owned foreclosures are a slower process and involve more paperwork than the other types – as one might expect.
This leaves us with REO foreclosures. They are the best way to get a fair price and smooth, rapid process.
2. Beat the Crowds and Investors
Ideally, you should approach the lender directly before the property is listed for a foreclosure sale. However, this means that you have prior knowledge of the foreclosure, which rarely happens. The next best choice is to use the help of a real estate agent who specializes in foreclosures. This way, you will also have access to information on how to speed up the process and advice on making the best investment in your price range.
3. Prepare to Spend Extra Cash on Repairs and Maintenance
Many of the homes put up for foreclosure are usually “fixer-uppers” to say the least. This is usually a result of the sellers not being able to keep up with the maintenance costs. However, you can take advantage of buying the property at a cheaper price through REO agents. This way, you’ll be left with extra cash to take care of repairs.
4. Beware of Foreclosure Scams
Home owners who have financial troubles usually fear going into foreclosure. It’s a long and tedious process and, most often, they are left with very little cash at the end of it.
This is where scammers come into play. They promise the indebted homeowners that they will help them sell the house for a small fee and save them the foreclosure costs and troubles.
However, these scammers rarely list the real price and most of the deals they broker have tons of hidden costs. Before you meet with a foreclosure real estate agent, make sure to check their reputation online. This is a scam you don’t want to fall prey to.
5. Consider the Moving in Timeline
The process of buying a foreclosure is usually a long one. A lot of paperwork is involved before you can finally have your dream home. Add this to the repairs the home will most likely need and you’ll understand why you should never buy a foreclosure if you’re in a hurry to move in.
6. The Ethics of Buying a Foreclosure
A lot of people argue that it’s wrong to profit from someone’s misfortune. No one has their home in foreclosure because they’re doing too well.
And yes, it’s sad to see people having to part with a place they called home for years. But, on the other hand, it doesn’t mean that if you don’t buy that home, no one else will. Banks don’t work that way. Plus, if you offer a fair price to the seller, you may be actually doing the previous owners a favor.
All in all, buying a foreclosure is a bargain, but, ironically enough, it comes with its own price tag. If you’re in no rush to move in and if you’re completely fine with paperwork and renovation work, then a foreclosure might be the ideal way to buy a new home for you. Otherwise, we suggest you stay on the beaten track (especially if this is your first home)! If you have any questions, give us a call! We would love to help with whatever your next real estate project is.