One of the first questions my Clients ask me when they are in the market to purchase a home is “Should we consider buying a home that is in foreclosure?” Here are my questions to my Buyers:
- Do you have the endurance that it takes to purchase a foreclosure?
- What are your must haves and wants?
- How long are you planning on residing in your new home?
The reason I ask these questions is because if they want a home that has been well taken care of or they need to close in the next couple of weeks then a foreclosure may not be their best option. Also, if they are not planning on staying for several years until all of the foreclosures are sold in their new neighborhood then they will probably have to take a loss on their new home in order to sell.
Foreclosures consist of “Short Sales”, “Sheriff’s auction”, and “”Bank owned”. There are different risks and possible rewards with each type of foreclosure.
Let’s start with the “Short Sale”. This is when a Seller’s home is in the foreclosure process. The Seller or the Listing Agent is negotiating with the Bank to allow the Home Owner to sell their home for less than what they owe the Bank. Do you get a bargain? Sometimes yes, sometimes no. What is painful about purchasing a “Short Sale” is that it typically takes longer to purchase the home even with the new legislation in place and you don’t necessarily always get a good deal.
Next is the “Sheriff’s auction”. I have just two things to say about this type of purchase. You can buy a home at a great price. Given the fact that most of the time you can not complete an inspection prior to purchasing the home, you can end up with expensive repairs that eat up your initial savings. If you insist on purchasing at this stage – HIRE A PROFESSIONAL! I don’t mean someone who has a Real Estate license. I mean someone who regularly buys homes at the auction. Anyone can go and buy at the auction. A Professional is someone who understands the purchasing process, knows the neighborhood and it’s value, has a good grasp of the condition of the home, and can help you buy the right home at the right price.
Lastly, the last type of foreclosure is what many people refer to as “Bank Owned”. Make sure either you or your Agent does some research on the neighborhood before placing an offer on the home. Sometimes the home is priced too high and you end up paying too much for a home that more than likely needs work. I have seen homes listed at incredible prices but because the Bank receives so many offers on it, they end up asking Buyers to submit what they call “Highest and Best” offer. People end up placing such ridiculous offers that it raises the purchase price higher than the home’s value. You can purchase a home at a great price by doing your homework (or having your Agent do the homework) and by having an Inspection completed so that you know the true cost of owning the home.
- Have patience when purchasing a foreclosure.
- Research how much similar homes are selling for in the neighborhood.
- Do an inspection on the property.
- Research how many foreclosures are in the neighborhood.
- If you buy at the Auction, then hire a Professional.
I wish you luck with your new home purchase!