“I want to buy one of those foreclosures”
When I meet with a buyer for the first time, ideally I like to have them come into my office so that we can talk about what the process and what they want in the home. It is not unusual for me to hear “I want to buy one of those foreclosures” because we all hear so much about that in the media. I always respond: “I hear you say ‘foreclosure’ but I’m guessing what you really mean is ‘a good value’? It’s not always the same thing.”
Is buying a foreclosure a good idea? Is it the best avenue for getting a good deal? A foreclosure is a home that is owned by a bank rather than a “regular person”. It is true that they price realistically so as to sell the home but here are a couple of items that buyers should keep in mind when considering buying a bank owned home:
1) In the state of Michigan once the homeowner has fallen behind in their payments the collateral (the house) is auctioned off to make good on the debt (the sheriff’s sale) and then the homeowner has a 6 month redemption period where they are given the opportunity to repay the debt to keep the house. Sometimes during this period of time the homeowner either unintentionally damages the home by abandoning it without being properly winterized or intentionally damages the house by looting it. This is not always true, but it is not unusual for it to need work (and sometimes that can be a can of worms).
2) Be careful that you still have your realtor do market research on the pricing. I have seen homes sell for over market value because the buyer assumed they were getting a deal because they were buying a foreclosure.
3) Although the market overall has 8 months of inventory (by definition, a buyer’s market) foreclosures only have less than 3 months of inventory (a seller’s market) so be prepared to pay full price if it is new on the market. You don’t always have the luxury of thoughtful consideration and getting second opinions from friends and family.
4) Your expense in purchasing the home is often higher in a foreclosure. The bank often has the burden of turning utilities on for inspections passed on to the buyer, as well as more expensive title insurance and other “add-on” expenses are not unusual.
I am not saying that I don’t think people should buy foreclosed homes, it is absolutely an avenue for getting a well priced home to acquire equity. However, it’s not the only way and you need to go in with your eyes open.