As prospective homebuyers look for deals, they’re becoming increasingly interested in foreclosed homes. In fact, 20 percent of all sales in April were foreclosure re-sales.
Interested in buying a foreclosed home? Here’s what you bargain hunters need to know:
Where to buy
Even though the national foreclosure rate appears to have peaked (In April, the number of foreclosures was down almost 3 percent from a year ago), a tide of new foreclosures continues to plague the beleaguered housing market. Naturally, the regions with the most foreclosures – to date – are the ones worst affected by the housing crisis: places like Atlanta, Sacramento, Miami, Las Vegas (The “poster child” of the housing crisis — prices dropped over 60% from the peak in 2006), and Riverside, California areas, where 14.75 out of 10,000 homes were foreclosed in April.
How to buy
While you can buy directly from the owner before they’re officially foreclosed on, or dare to try your hand among the seasoned, fast-moving, competitive investors at an auction, it’s safer – and easier — to find homes that are owned by the bank (or “REO,” which is industry lingo for real-estate owned). You can inspect the home before you purchase it (This is important, as foreclosed homes are generally sold “as is” and may need significant repairs — something you’re going to need to budget for), and you can mortgage your purchase (be sure to secure your financing in advance as it’s a competitive, and fast-moving market). Furthermore, former homeowners are out of the picture at this point so you won’t have to evict them. And you can be reasonably sure that the property’s title is free of liens, because the bank will typically perform an extensive title search before listing the home for sale.
What to expect
Working with a real estate agent who specializes in foreclosures can be a huge time-saver, but you should pack your patience anyway as there may be unexpected challenges and road bumps along the way. Also – while you can expect significant savings (in some markets, upwards of 40%, compared to non-distressed/non-foreclosed properties), remember that a bargain price – with virtually no room for negotiation, by the way, so don’t bother with a lowball offer — doesn’t make up for a $30,000 roof repair, active termites or other high cost issues. Pay for a complete home inspection and back out of the deal if the problems are too significant.
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Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at http://veragibbons.com/.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.