When you’re buying a home, it can be tempting to look at foreclosure properties. They are often priced lower and you can find some great homes in areas you may not be able to afford otherwise. However, there are some things you need to know before you buy a foreclosure.
You might not be getting the steal of a deal you think you are.
While the perception around buying a foreclosure has always been that you are getting a better deal, that doesn’t necessarily hold true anymore.
Foreclosures typically occur when the lender (the bank) repossesses a home after the previous owners fail to pay their mortgage. Foreclosures can also occur as a result of a court ruling. In both scenarios, banks and the court system have an obligation to sell foreclosed properties for a fair market value. The market value of the home is typically determined by a realtor and a property appraiser.
From my personal experience, the appraised value usually ends up being what the property is listed for, but it doesn’t always coincide with market value, meaning the property can be over or under-valued.
At the moment, however, the current market could work in your favour. Read more about taking advantage of the spring housing market in my most recent blog post.
Bank sale vs Court-ordered
As mentioned, foreclosures can be a result of the bank’s decision or a court ruling, each of which will shape your experience when purchasing the property.
Bank sales usually go a bit faster, as the bank is eager to sell the property and recuperate costs. Negotiations are handled by a bank employee using certain guidelines, meaning that it usually takes at most a few days to hear back with counteroffers. That doesn’t mean there isn’t the potential for delays, in some circumstances, offers can take longer due to legal red tape.
Court-ordered sales are different. In the case of judicial foreclosures, a court date is set and a judge decides on the best price for the property from all of the offers submitted. This means your timeline is decided by the courts, and you may not even get to purchase the property.
Be prepared to do a home inspection
When you are buying a home, you can typically make a property inspection a condition of the sale. However, foreclosures can often require that any offer submitted does not have conditions. This means that you may be required to get an inspection, which can cost about $650, prior to even submitting an offer. Inspections will also give you a better idea of what the potential costs of fixing up the home may be.
Additionally, just because it’s a foreclosure property doesn’t mean there won’t be competition. Paying for an inspection can be risky, as there could be others doing the same thing in preparation to purchasing the property.
What you see is what you get, literally
With other properties, you may be able to negotiate for certain terms like a professional cleaning or items to be removed from the property like an old playset. Foreclosure properties are sold as-is, where is at the time of possession, leaving no room for these types of negotiations. If you by chance find a foreclosed property that is considered to be a steal deal, be prepared for that property to need (potentially costly) renovations.
Want some renovation suggestions? I’ve got them for you here.
Additionally, if a seller or a tenant is living in the property prior to your possession date, there is always the risk that the property may not be in the same state that it was when you originally viewed or inspected the property. Unfortunately with foreclosure properties, you are responsible for whatever damages may have occurred, or whatever items are left on the property.
Overall, foreclosure properties can be an interesting option when purchasing a home. It is critical to have an experienced and knowledgeable realtor to walk you through the process and ensure that the property is right for you.
Due to the many extra steps and potential risks involved with the purchase of foreclosure properties I am hesitant to recommend them for first-time home buyers. However, they can be great properties for investors to add to their portfolios, or for someone who isn’t afraid to do some (or a lot) of home renovations.
Looking into foreclosure properties? Let me help you with that!
As one of Edmonton’s top REALTORS, I have the experience and knowledge necessary to guide you through the process of purchasing a foreclosure property. Contact Jeneen by phone: (780) 904-4240 or by email: firstname.lastname@example.org.
Hi, I’m Jeneen Marchant!
I’m here to help you find you during your next Real Estate transaction. Home ownership is a beautiful thing and I love seeing my buyers happily opening the door to their new home on possession day. I also get great satisfaction from helping my sellers get the best price possible for their home when it is time to move on to another property.