5 Things You Need to Know About Foreclosures
Enticed by a Deal? Here’s What You Need to Know About Foreclosures:
If you’ve heard either horror stories or success tales from people who purchased foreclosed properties, it’s likely you’re curious about whether or not foreclosure real estate is a smart investment for you. Perhaps you’ve wondered, how much can you really save by purchasing a home facing foreclosure?
According to research on RealtyTrac, a site that measures U.S. real estate and foreclosure homes statistics, there is ample opportunity to score a bargain on a home. In fact, for July 2016, the median sales price for a foreclosed home was a substantial 43% lower than comparative non-distressed home sales.
While you may be enticed by the low listing prices, it’s important to be fully informed about the risks and factors that go into buying foreclosure real estate. Read on for five essential pieces of information you’ll want to know before you decide to consider a foreclosure home.
1. Be Prepared for Fierce Competition
With incentivized pricing, you won’t be alone in your ambition to secure a great deal on a foreclosed home. While it can be helpful to have a real estate agent guide you through the process of buying a foreclosed property, one way to get ahead of the crowds is to bypass realty services and approach the lender directly.
Many banks, especially local and regional banks, are eager to have the foreclosure transferred into the hands of the buyer. If you’re proactive, you can actually approach the lender before the property is listed on the market, and gain a competitive edge while looking for a home.
2. Foreclosures Are Often Wrapped in Red Tape
Even if you come out ahead of other eager buyers in finding a foreclosure, it’s important to be aware that the process of purchasing a home facing foreclosure is often long and frustrating. Since the sale is not being initiated by the home owner, be prepared for slower response times and a burdensome amount of paperwork.
For short sales, especially, prospective buyers must exercise patience, as the primary lender, the current homeowners, and any other lien holders play an active role in approving your bid.
3. Overdue Repairs
Since most foreclosures are sold in “as-is” condition, be sure that you don’t take the list price at face value. The amount of money you are willing to spend on foreclosure real estate should exceed the initial cost required to purchase the home and also factor in necessary repair and maintenance costs.
If you’re handy and eager to invest time and money into home improvement, this can be a great opportunity to truly make a house your own by installing choice appliances, finishes, etc. Regardless, it’s important to be realistic about how much time and money you are willing to put into a foreclosed property that has fallen into a state of disrepair.
4. Avoid Auctions
If you’ve decided that despite the challenges, you would like to pursue purchasing a foreclosed home, advisors recommend that if at all possible, avoid auctions! Especially if you’re new to the foreclosure market, it’s imperative that you don’t consider auctions a viable method for securing a foreclosed home.
Daren Blomquist, advisor and RealtyTrac vice president, urges buyers to be aware that the auction process is set up with risks, such as denied right to inspect a home or its tax record — important details to consider when making such a monumental decision.
5. Purchase a Foreclosure From a Bank
A safer route to buying a foreclosed property: complete your transaction through a bank. The benefit of buying from a bank is that the institution is required to pay off any residual back taxes, and, unlike auctions, you will be given the chance to inspect and visit the home to assess whether or not the cost of repairs exceeds or falls within your budget.
While these cons and warnings may seem disheartening, don’t be alarmed! If you’re aware of the added complications that can accompany purchasing a foreclosure and you’re still up for the challenge, purchasing a home facing foreclosure can be a great opportunity. After a bit of hard work, foreclosed homes can turn into a profitable investments and wonderful places to live, just be sure to do your research before diving in!
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