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Buying, Finance, Foreclosures

The Best Markets If You’re Looking to Buy a Foreclosure

Whether you’re in the market for a family home or an investment property, you will find that foreclosure filings and prices differ significantly from one market to another.

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Foreclosures are the former homes of owners who defaulted on their mortgage payments and then sold by the banks that held their mortgage. They cost less than an average home but require more effort to find, and if necessary, to repair. Foreclosures are widespread with investors and homeowners who have the do-it-yourself skills, time and money to put them in shape.

The best time to buy a foreclosure was ten years ago in the wake of the housing crash. Today, foreclosure activity is even lower than it was at the height of the housing boom. In the third quarter of 2019, foreclosure filings were down 6% from the previous quarter and 19% from a year ago— a 13-year low.

There were also much cheaper than typical homes ten years ago. At that time, the national median home price was about 40% lower than it is today and the average price of a foreclosure sale amounted to an approximate 30% discount on the average price of non-foreclosure homes. Today the foreclosure discount is closer to 15%. However, these are national numbers, and every market is different. Whether you’re in the market for a family home or an investment property, you will find that foreclosure filings and prices differ significantly from one market to another.

Chicago Skyline Scene in the Old Town and Gold Coast Neighborhoo

Best Foreclosure Markets Today

Below is a list of the most active foreclosure markets today compiled by ATTOM Data Solutions, which owns RealtyTrac (perhaps the best-known source of foreclosure data and additional information about markets).

Market Foreclosure Rate Median Home Price Days on Market
Philadelphia, PA 461 $288,300 75
Cleveland, OH 453 $179,950 73
Ocala, FL 447 $209,050 65
Columbia, SC 425 $223,442 68
Jacksonville, FL 394 $310,542 73
Peoria, IL 388 $123,750 85
Fayetteville, NC 369 $186,000 73.5
Rockford, IL 366 $147,300 66
Trenton, NJ 312 $342,550 82.5
Atlantic City, NJ 269 $249,950 95.5

*The foreclosure rate is the number of new foreclosures that were filed in the quarter.

The foreclosure rate gives you a sense of how many properties are available and the median home price gives you a way to compare a property in one market with other markets. Days on market is a measure of demand– faster sales are a sign of higher demand.

In the table above, the median prices are from December 2019. That month, the national median price for all existing homes was $274,500. Only three of the ten markets above were higher than the median. The national median days on market was only 41 days, a sign that demand was significantly weaker than it was in most markets.

The era of the foreclosure floods is long over and conditions have returned to “normal”. All but three of the markets with the most foreclosures are lower priced than most and all are experiencing much less demand than most markets. You might do the same analysis with markets you want to explore to get a sense of how local foreclosures stack up against the rest of the local market.

Tips on Buying a Foreclosure

For investors, one of the keys to success today is acquiring properties in good markets at the lowest possible price. Homebuyers are competing with investors who scour the nation for good deals. Today they focus on markets with the best “cap” rates, which are the ratio of Net Operating Income (NOI) to the property’s value. Cap rates are a way for investors to compare the relationship between the rents they can charge in a particular market with the price of the property. The higher the cap rate, the better the deal. Investors also buy with cash, not mortgages. That makes a foreclosure sale faster and easier than a mortgage, which will require an appraisal, good credit, and low debt.

  1. Get an agent. Foreclosure deals can be complicated, especially if there was a second trust on the property or if it was securitized and has multiple owners. Foreclosures require local market knowledge and experience working with local lenders. As with any purchase, an agent can find out the history of the home and recent foreclosure sales locally.
  2. Get educated. Real estate data firms like ATTOM Data Systems, CoreLogic, and Local Market Monitor issue periodic reports on foreclosure markets.
  3. Research the property. Tour the listing and have an appraisal and a home inspection done. These will help you figure out if a property is a good deal by finding out its current appraised value and estimating how much it will cost to get it in shape.
  4. Get pre-approved. As noted above, you will need to be ready to compete against investors if the foreclosure is a good deal.  Be prepared to put down 20 percent or more and get pre-approved for more than the amount you will need to borrow.
  5. Make your first offer your best offer. Don’t assume that a lender will sell for less than the list price, even if the property has been vacant for a long time.

You can begin your search for foreclosures in any market on Homes.com by scrolling down to the bottom of Homes.com’s home page. Click on “Foreclosed Homes for Sale” and you will be taken to a search page that will ask for zip code or location. You can also find foreclosures when you are looking at listings.  Just go to the “filters” tool in the upper right-hand corner and click on “foreclosures” to find current listings in the neighborhood you are browsing.

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Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

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