Many buyers shy away from foreclosures, but these types of sales present opportunities to purchase a discounted home in a desirable neighborhood. If you are not working under a specific move-in deadline and are willing to take on the added complexities of the purchase process, you might consider a foreclosure. With interest rates remaining on the lower end of historical norms, the additional savings gained by purchasing a recently foreclosed home may help buyers to move into a larger house than would normally be in their price range.
Flexibility helps buyers of foreclosures
Foreclosed homes are also referred to as bank-owned properties, or real-estate-owned (REO) properties. These houses have been reclaimed by the mortgage bank after a prior owner was unable to meet the payment obligations. Mortgage banks often hold a large portfolio of foreclosures, which are handled by many levels of administrators. This means that banks may not respond as quickly as a motivated seller.
Potential buyers expect a deep discount on foreclosures because these types of homes are usually not in mint condition. Foreclosures are sometimes offered at auction, and depending on the local real estate market, bargains are available. If the bank does not place a foreclosure up for auction, it will engage a real estate agent to assist with the sale.
Unlike motivated personal sellers, banks generally will not spend time dealing with multiple counteroffers, and their response to bids may be much slower. Rarely, a bank may be looking to shed excess foreclosure inventory and will accept an extremely low offer on a listed property.
The risks of buying a home as-is
Foreclosures are typically listed at market discounts due to the condition of the home. The main risk associated with foreclosed properties is that they are offered as-is with little or no seller disclosures.
Buyers are welcome to perform a home inspection, and definitely should do so, but typically, no repairs will be made by the bank. Some issues you should look for in foreclosed homes, according to Bob Vila, include plumbing leaks, foundation cracks and roofs in need of repair. Prior to buying a foreclosed home, use your home inspection as a tool to help estimate the out-of-pocket costs needed to bring the home to a livable condition.
Check for title issues
Title issues are another common part of the foreclosure purchase process. Many past owners of foreclosed homes also owe back taxes and utilities, which result in liens placed on the property. These liens must be repaid before settlement to ensure a clear title. When title issues do arise, settlement may be delayed. Buyers and their agents should stay informed throughout the process and communicate frequently with the title agency.
If you have patience and flexible timing, as well as the desire to take on a remodeling challenge, then a foreclosure may be a great way for you to buy a larger house in a neighborhood you like.
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