Should You Buy a Foreclosure?

There are still a lot of foreclosures on the market today. As a matter a fact, according to a study by RealtyTrac, one in every 1261 housing units in North Carolina filed for foreclosure in the month of December.  And while some of them can provide a chance at a great deal, there are some serious factors that any buyer should keep in mind when contemplating the purchase of a foreclosure.  Ok so let's dig into this.

SOLD AS-IS
Probably one of the biggest potential dilemmas you will face when buying a foreclosure is that they are sold AS-IS.  Which of course means you agree to buy the property just the way it sits regardless if the fixes are minor or if they are extensive.  Trust me there is a big difference between patching and painting walls and replacing a leaking roof or fixing foundation issues.  There are a lot of systems that can malfunction in a home.  This is something you have to be keenly aware of and why it is so important to have a great agent on your side to make sure this is addressed.  In other words, be prepared to hire professionals to assess all major systems of the home to make sure you are not in for a dreadful surprise when you move into your new abode.  A great agent will help you traverse this facet of the home buying process.

NOT MOVE IN READY
It stands to reason that if the home you are purchasing needs extensive repairs you most likely will not be able to move in right away after closing.  You will be busy hiring contractors to take care of all the issues meanwhile living out of a suitcase at a hotel, or even worse your in-laws!  Just kidding, you may have wonderful in-laws, as I do, but when it comes down to it do you really want to live with them for an extended period of time?  For that matter, do they want YOU living with them?  Now of course not all foreclosure purchases will necessitate this but it is something you have to keep in mind and plan for.

EXTRA TIME TO CLOSE
In a traditional sale, in most cases, you are dealing with a homeowner who has decided to sell their home for one reason or another.  This means they are motivated to sell because they want to move too or they have already moved and are trying to avoid paying two mortgages.  However, in an REO (lender owned) property you will be dealing with the bank's asset manager.  And while he or she wants to unload these properties they are dealing with multiple properties, multiple offers, and multiple agents. This inevitably can lead to longer processing times on your offer.  Also, like a traditional sale, they can reject or counter your offer leading to increased wait times on getting an agreed upon purchase contract.  Is this always the case?  No, but it is more often than not the norm.  Much of this depends on the market and the size of the bank you are dealing with.

Ok so at this point you may be thinking "why in the world would I ever want to buy a foreclosure?" The truth is there are some really good pros to buying a foreclosed property also.

LOWER PRICES
This is obviously one of the most attractive pros to buying a foreclosure right? It's an opportunity to buy more home for your money! Foreclosures are often sold for less than traditional homes but this usually depends on the property itself. A higher end home that doesn't need a ton of work will offer less of a discount than a home that is a fixer upper. It is extremely important to have a great agent that can do a CMA for you to tell what similar homes in the area are selling for. That way you can gauge just how good the deal really is.

INSTANT APPRECIATION
And of course if you are buying the property for less than what other similar homes in the area are selling for this will provide you with a high chance of experiencing instant appreciation. Appreciation is the amount your homes value increases over time, and since you bought it at a discount this a lot of times will lead to fast appreciation of your property. Which will make you very happy if you decide to sell down the road.

LESS COMPETITION
Because of some of the drawbacks to buying a foreclosure, listed above, there are fewer owner-occupants placing bids.  This puts you in a position of having less buyers to compete with on your offer.

There are many pros and cons to buying a foreclosed property and there are many other factors that should be considered before making an offer.  Having a great agent is key in deciding if it is right for you and your situation.  It is imperative that you weigh the purchase price against any repairs that are needed to make sure you are making the most educated decision and that you are truly getting the deal you think you are.  Please feel free to contact me with any questions that you may have.  I would be happy to help you in your home buying endeavor.