Foreclosures are often believed to be great deals for home buyers and are often marketed as great investment opportunities to buy distressed and under market value homes in better neighborhoods. However, investing in this kind of real estate takes money, time, experience and careful planning. There are quite a few pitfalls that 1st time home buyers and investors should be aware of when considering the purchase of a foreclosure….some may have been repaired by the bank and put on the market in decent condition, but yet, still have hidden damage and will need more than just cosmetic work. As of today, the U.S. real estate industry continues to see a steady drop on the number of foreclosures – 62% down since 2010.
This means that even with the recent years' decreases, thousands of foreclosed homes are still currently listed on the market, making it very tempting to settle for these properties which come at a cheaper price. However, buying a foreclosure is a risky move, and a buyer may either discover a treasure, or uncover a trap. Here are some things to know before making that purchase:
Foreclosures are usually non-negotiable.
With its lowered prices, foreclosed properties are meant to be sold as fast as possible, so that the sellers can quickly recover their money. The longer a foreclosed home sits on the market, the more losses are incurred. This is why most of these properties are sold “as is”, with no time and effort to make necessary repairs. It is discounted for this reason.
Most foreclosed homes are fixer-uppers.
If you think you can live while doing home repairs, then you wouldn’t mind buying a foreclosed home. Previous owners of foreclosed homes may have stumbled upon some financial challenges and as a result could not keep up with the mortgage payments, so keeping up with property maintenance may have been the least of their priorities. Moreover, some foreclosures which the banks have taken over can be neglected and exposed to vandalism. Now, this doesn’t mean that all foreclosure properties are unfit. If you know where to look and are working with an experienced local agent, you should be able to secure a property that is structurally sound and only needs a few improvements to make it look as good as new.
Foreclosure properties come in different categories.
Some properties are being sold 11% below the market value because the homeowner hopes to sell his property before the actual foreclosure process begins. This is called a short sale, and properties which fall into this category are usually in a more habitable condition.
When a home falls into actual foreclosure, a sheriff is tasked to conduct an auction. Auctioned properties are sold to the highest bidder, starting at very low prices. The competition is generally stiff for auction sales, and a high level of experience is required when buying a property this way.
There are foreclosed homes which are owned by traditional banks and other types of financial institutions, and these are called “REO” or real estate owned properties. This is a safer choice when buying a foreclosure, because banks are required to pay the remaining liens or unpaid taxes. Moreover, bank owned properties are already vacant, and open for pre-purchase inspections.
Some government agencies own foreclosed homes. Except for the ones foreclosed by the IRS (Internal Revenue Service), you can save a lot by buying foreclosures from FHA (Federal Housing Administration), Fannie Mae, U.S. Department of Veterans Affairs (VA), and Freddie Mac because some of these homes come with financing assistance. The process may be quite slower though, but since lenders usually veer away from distressed properties, government foreclosures may be a good option.
A pre-qualification letter will put you ahead of the competition.
Foreclosures are highly sought after by investors and homebuyers, so getting pre-qualified increases your chances of buying the property. Sellers would likely choose serious buyers with a ready financing status in place.
According to the National Association of Realtors, foreclosures start at an average 16% off the market value. This could go even lower depending on the sales pace. For some neighborhoods like Bryan County OK, foreclosures can sell quickly. Realty stats show that the percentage of foreclosed properties in Bryan County housing market are 0.02% fewer than the 0.05% national average. So if you are looking to buy a foreclosure in this area, it would be best to get prequalified as soon as possible.
Buying a foreclosed home could become one of your best investments ever. All it takes is careful planning, and a trusted agent who will help in your search. Whether you are looking for a previously owned or a brand new home in Bryan County OK, we am ready to assist you. Call our number or e-mail us today.