Should You Buy a Foreclosed Home?

should you buy a foreclosed home?

Not long ago, you could spot a bank-foreclosed home a mile away. They were often abandoned, stripped of all appliances and fixtures, with neglected landscaping. Today, banks often renovate their Real Estate Owned (REO) properties before listing in hopes of selling to people will who live in them, instead of contractors or investors who plan to “flip” the property. If you want to buy a foreclosed home, consider the advantages and disadvantages first.

ADVANTAGE: Foreclosed homes are still cheaper

Bank foreclosed homes are typically about 5 percent below a comparable house in the same location that isn’t a foreclosure. In previous markets, foreclosed homes were often in terrible condition and were therefore priced about 15 to 20 percent below market.

DISADVANTAGE: Foreclosed homes can be risky

REOs come with baggage. Many banks will invest money to make the listings look nice and get the prices up. But as a result, they’re often less flexible on price and not as eager to sell.

Frequently, you won’t know about the home’s history. There are no disclosures regarding leaky roofs, mold or crime. You have to buy the home “as is,” without any recourse if things go wrong.

ADVANTAGE: Many foreclosed homes aren’t in great locations

Many of today’s foreclosed homes are in less desirable parts of towns or school districts. If you see an REO with a compelling price, remember that it may not be the foreclosure that makes it such a bargain. It could be its location. And you don’t want to get stuck unloading a home in a bad location in a few years. Not surprisingly, foreclosed homes in good neighborhoods often sell quickly.

DISADVANTAGE: Banks aren’t people

Unlike a typical seller who may care about your situation, your personal background or market history, banks don’t. Your offer is likely submitted electronically and placed into a cell on a spreadsheet for an asset manager to review. If the numbers don’t add up, expect a big rejection.

Banks want top dollar out of their foreclosure inventory. They watch the market and read the headlines. Foreclosed homes will be priced slightly lower than the market, but they are still as-is, take it or leave it with some risk associated. Do your homework and work with a good local agent before signing on the dotted line.

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