What are the advantages of buying a home that is in foreclosure?

Asked by Megan, Rancho Penasquitos, San Diego, CA Wed Sep 9, 2009

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Diane Conaway, Agent, Escondido, CA
Wed Sep 9, 2009
I agree with what Seth said about price. After overbidding from multiple buyers (below $300k can have 20 or more offers), it usually approaches what you could pay on a regular sale who has to compete with foreclosure pricing. However, the condition is usually not as good. It could be very much worse and buyer beware. Some banks are putting in new carpet, paint and appliances to increase the appeal. Move in ready condition homes are especially in demand. Determine your purchasing power by getting preapproved and then do your research for what it will buy in different areas. Good luck!
1 vote
Seth Chalnick, Agent, Cardiff, CA
Wed Sep 9, 2009
Actually, not much. It is true that the price you’ll pay today is roughly 30%-60% less than the price you would have paid for the same property 2-3 years ago. But this has more to do with the decline of market prices than the type of sale it is.

Pretty much all types of homes being sold today... which include foreclosures (also known as REO, bank owned, etc), short sales, and resale by traditional sellers... are all pretty much going to sell for the same price, all else being equal.

If today's market was more of a free market (i.e. not being influenced by banks and government), then the benefit to a foreclosure would probably be about a 3% to 5% discount compared to other similar houses... in exchange the seller would require a quick close and have you agree up front not to request any repairs.

But in today's market of $600k homes and below… I would argue that the artificial lack of supply (due to foreclosure moratoriums, etc) is having the effect of artificially stimulating demand to the point where you will pay a premium on any house that you’ll be lucky enough to have a seller accept your offer.
Web Reference:  http://www.SethChalnick.com
1 vote
Mike Lewis, Agent, San Diego, CA
Tue Oct 6, 2009
Megan, Many times you can buy the home for less money becuase the property is usually in lesser quality shape than a regular listing. The yards are in many cases dead, homes can be stripped of essential and non essential items and the home can be damaged. The banks will usually make a quick decision without the emotion of a homeowner selling which a homeowner always thinks their home is the nicest most expensive on the street. The banks look at facts through their REO Agent and Asset Manager and move very fast. Most of the time these homes, at least in my market area, get sold to cash buyers and investors. Many times the condition of the foreclosure prevents an FHA or VA buyer from buying the home.
0 votes
Dallas Texas, Agent, Dallas, TN
Thu Sep 10, 2009
Depends on what area of country, I area distressed there are great opp's there.

Other areas in country such as Dallas foreclosures not below market value

Many foreclosurs are distressed may not pass lender approval. Are you willing to find a home or move in and work all home improvements know how to do so

National Featured Realtor and Consultant, Texas Mortgage Loan Officer, Credit Repair Lecturer
Follow me on Twitter: http://twitter.com/Lynn911
Web Reference:  http://www.lynn911.com
0 votes
Jeffrey Doug…, , San Diego, CA
Wed Sep 9, 2009

All good answers below and because of low inventory and strong competition, the lower priced bank owned homes are selling for a premium. With that said you are dealing with a seller that can actually sell the home vs. the short sales which can take from 90 days to 6 months with no results.

Bank owned sales are normally "as is" without any repairs and can be in tough shape. Also they tend to have deferred maintenance and hidden defects so do your homework and inspections. Homes do not do will if they sit vacant, seals dry out, bugs get in, lawns die, and appliances are removed.

Lastly, consider price vs. value. Yes sometimes a bank owned home may have a great price, but be located in a neighborhood full of future potential foreclosures. As we see more bank owned sales come on the market, and you will not for the next year or so, this competition may soften prices as inventory becomes more plentiful and the buyer pool goes down. I give my Clients an up to date list from Foreclosure area in the area they are interested in buying to see what activity exists.

Often times I tell my Clients it may be better to buy a home in an older, more stable neighborhood where foreclosure rates will be less. Also these homes tend to have lower HOA or Mello Roos fees. Buying from a real Seller will get you a better condition home and the possibility of negotiating needed repairs.

Do your homework, look at everything out there on the market, don't get into a bidding war where you pay above market value, and take your time. The best advice I can give anyone is to look at enough homes to know when a good one comes along.

Pick a good agent that will spend the time to educated you. Have that agent set you up on an automatic update - because when a good listing comes along, it will be the early bird that gets the worm. The other day I represented some Clients on a successful purchase where the house was on the market less than 4 hours.

I have written a post with some tips on buying a bank owned home . The article is titled Bank Owned Bingo - 5 tips for Success - link is below:

It is a great time for starter buyers in San Diego as long as you are careful and make an informed purchase - don't let anyone push you into anything that does not feel right.
0 votes
Jackie, , Santo, TX
Wed Sep 9, 2009

I agree with much of what has been said by Seth and Diane and a few others.

Frankly in today’s market, there are not a lot of advantages in buying a foreclosure. Bank owned properties often they sell 10-20% or more above the listing price and virtually always have multiple offers in the first week they are listed.

What you don’t get with a bank owned home is disclosure of current condition and any former problems. May of the listings won’t even accept an offer with some disclosures such as the Statewide Buyer/Seller which discloses many general potential problems.

Advantages? Well maybe you can get a property a little below fair market value, but often because of the multiple offers (sometimes 50 or more), they sell at or above where a non-distressed property would sell.

A good example is a REO in PQ that recently hit the market. In the first 3 days there were over 15 offers submitted with around 50 in a week. It will probably sell for 120% of the listing price, which actually is right around what I would estimate to be fair market price

Does this mean you should not try to buy one. Absolutely not. Also there are not a lot of other choices today. Short sales v=can often be the best bargains, but the can take a long time and are frustrating for everyone involved, buyer, seller, brokers and yes, even the banks

Jay Gedanken
Broker Associate
SELLSTATE Next Generation Realty
CA DRE Broker # 01416735
0 votes
Beth Roach, Agent, San Diego, CA
Wed Sep 9, 2009
I agree with the other answers that you can often get a great price when purchasing a foreclosure. The down side is that you will not get the same disclosures that you would when purchasing a property from a private party. This is because the bank has never lived in the home and does not know the history of any repairs or modifications that may have been done. So buyer beware.

More than ever it is important to have a thorough home inspection performed by a professional building inspector when you purchase a bank owned property. Another caveat is that banks will generally not pay for any repairs or extra things like home warranties, the way many sellers will in a regular transaction.

Also, at the lower end of the market in San Diego, $500K and under, there is tremendous competition among buyers. So you can sometimes be competing with several other buyers on a bank owned property and end up paying more than what it might have gone for had it not been bank owned. In my opinion bank owned properties can be a good deal, if you do your homework thoroughly and don't get caught up in a bidding war with other buyers. A good realtor can help you navigate the ups and downs of buying a bank owned property. Call me if you want more info. Good luck!
Web Reference:  http://CallAGoodRealtor.com
0 votes
Bill Eckler, Agent, Venice, FL
Wed Sep 9, 2009

Everyone love a "bargin." And people today believe that short sales and foreclosures are the best source for bargins in real estate.

As far as advantages, we see none.......only the opportunity to save, if you are lucky enough to find the right deal.

Good luck
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e, , Alameda, CA
Wed Sep 9, 2009
The main advantages in buying a home in foreclosure the price and time frame. You are going to get a decent to good price on the home especially if the lender is motivated to sell. Also if you are qualified once you offer is accepted it should be a smooth and quick process with the lender. Good luck with your home search.
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Steve, , Rohnert Park, CA
Wed Sep 9, 2009
Generally, the advantage price.

The home will sell for what the market (perspective buyers) values it at. You won't get stuck looking at the home of some delusional owner who believes his 1970's track home is worth the over-inflated price he bought it for in 2004.

Some foreclosures are pretty well beat up -- holes in walls, leaking roofs, etc -- so you can get quite the fixer-upper at a lower price if you're so inclined.
0 votes
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