What Are the Pros and Cons of Purchasing a Foreclosed Property?

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April 4th, 2014

The U.S. housing market is slowly making a comeback from California to New York, so buyers can no longer expect the same amazing deals that were available a few years ago. But with housing vacancy rates well above normal, there are plenty of opportunities for investors to find a good bargain, and investing in stable markets like Miami, Manhattan and San Francisco can still be a good move.

Many investors find that foreclosed homes offer good value. They typically offer a great price from a motivated seller, but foreclosures can sometimes end up costing you money because of unforeseen problems. No matter what kind of investment you are looking at making, there are some definite pros and cons to buying a foreclosed property, and it is important to understand them before making a commitment.

Foreclosures are typically one of two types of sales: a “real estate owned”, or REO, which is held by a bank or lender and a home sold at a foreclosure auction either online or at a courthouse. Pre-foreclosures are properties that are in danger of falling into foreclosure, but that are still owned by the homeowner.

With an auction property, prices are typically far below the usual cost per square foot and if you know what you are doing, some amazing deals are out there. You are also likely to have a lot fewer competing offers. But with a foreclosure auction, the buyer must truly beware.

The single biggest downside to buying at a foreclosure auction is the considerable increase in risk borne by the buyer. Buyers may not have the ability to get a home inspection or repair estimates and have no guarantee that the property is free of liens, code violations. It might have multiple mortgages and there may even be tenants or former owner that will need to be evicted. Auction foreclosures usually also require paying in cash within 24 hours. Once you’ve agreed to buy, there is no going back.

On the other hand, buying a foreclosed property from a bank or lender is a much different experience. Many people are more comfortable with this type of foreclosure sale because it seems very similar to buying a home from an individual, and they range everywhere from modest starter homes to high-end luxury properties that are only in need of minor repairs or upgrades. However, there are some critical differences.

One of the most crucial things to be aware of when buying REO homes is that lending institutions do not have to disclose any information about the property’s condition. Make sure that you insist on seeing the property in person, or make your offer contingent on a home inspection or the property being approved for a mortgage.

It is not uncommon for a foreclosed home to be in need of extensive repairs and many may not even have water or electrical service, which makes the inspection process even more difficult. To help you make a wise decision about whether or not to invest in a foreclosure property, a thorough home inspection is essential — especially for properties that have been left vacant for a long time.

You may be dealing with multiple competitive offers from other interested parties, especially if the property is in a good location. But rather than letting yourself get carried away in a bidding frenzy, you must consider the investment carefully to decide if you are better off walking away and searching for a more suitable property.

When considering the pros and cons of investing in a foreclosed property, hiring a professional can help you take advantage of the benefits while avoiding the pitfalls. Sterling Luxury Group has helped many investors to make the right choice about whether or not to buy a foreclosure.

We are experts at analyzing the value of a foreclosed property from its location to it floor plan and can help you to determine whether or not the property will offer you a good return on your investment and exactly what repairs and upgrades are necessary to increase the property’s value.

We can also help you navigate the lengthy processes involved in purchasing a home from a lender, assisting with important research regarding titles, liens, back taxes, mortgages and other debts that may be associated with a property.

About Sterling Luxury Group

Sterling Luxury Group redefines the meaning of living a luxury lifestyle. From helping you select the perfect home through Sterling Luxury Homes, to refining the finishing touches of your interior décor through Sterling Home Styling, to styling you from head to toe through Sterling Personal Styling, let us redesign and restyle your life.  We are Global Image Group‘s luxury lifestyle makeover image stylists in real estate, interior decor, and personal styling in Miami, New York, L.A. and Dubai.


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