Today, for every homeowner in (or thinking about going into foreclosure), there is somebody who has probably considered getting a great deal on a new home by purchasing a foreclosed home. Although a foreclosed home can be a tremendous deal, buying one comes with certain hurdles that you won’t face in an ordinary real estate transaction. If you’re thinking about buying a foreclosed home, here are four things to consider.
Where to find foreclosed homes. Finding foreclosures has gotten a lot easier. For one, there are more of them out there. But, there has been so much press about foreclosures that realtors and specialty real estate companies have jumped on the bandwagon to promote foreclosed properties.
On specialty real estate Websites like ZipRealty you can search for foreclosures in your area or ask for referrals to local realtors that specialize in foreclosures.
Skip the auctions. Some people mistakenly think that the only way to purchase a foreclosed home is at an auction. Although savvy investors can get really great deals at auctions, buying a property at an auction is risky: you’ll need to pay in cash, you can’t properly inspect the home, and you may even discover there are liens against it. The other way to buy a foreclosed property is to purchase the home directly from the bank that owns it. It’s similar to a traditional real estate transaction (you can inspect the home and finance it); the only difference is that the seller is the bank, not the homeowner.
Consider repair costs. The majority of foreclosed homes are definite “fixer-uppers”. Most haven’t been lived in for a while and some have been abandoned, even vandalized. (A good friend of mine is considering buying a foreclosure that was still being built; there’s no drywall yet)! Even if you plan to perform repairs yourself, it’s a wise idea to ask a contractor to give you professional estimate of what fixes you’ll need to make (and, of course, how much they’ll set you back).
Lowball…and wait. Don’t assume that just because a property is bank-owned that the asking price is a bargain. The banks want to recoup as much as they can, and may list foreclosures at market value. That said, most banks will want to move foreclosures quickly, so it can pay to make a really low bid. Of course, you may not get any bites on low offers. To make matters worse, many banks are dealing with so many foreclosures right now that they may not get back to you for weeks—even months, giving other buyers plenty of time to outbid you.
Have you bought—or considered buying—a foreclosure? What was the experience like? What did you do right and/or wrong? Do you recommend it?
Editor’s Note: Thanks to The Weakonomist for hosting this week’s carnival of personal finance in which my Top Financial iPhone Apps post was included! Also, thanks to The Washington Post’s Small Change blog for including Money Under 30 in your blogroll. Check out Small Change for daily frugality tips.