The average new home price in the United States is upwards of $225,000 according to Zillow, the Seattle based real estate marketplace and data researcher. Meanwhile, Forbes reports that people buying foreclosures typically pay around 18% less for a foreclosed house or condo, which means buyers can save as much as $40,000 by going the foreclosure route, but then again understanding everything involved in buying a foreclosed house or condo is key.
Understanding the Basics of a Foreclosure Sale
First, as Forbes points out, purchasing distressed real estate in 2019 is not the same as the good old days of 2007 or 2008. Distressed real estate houses on the market are the lowest they have been in many years according to the National Association of Realtors. And whether the lower that ever inventory of distressed properties is due to tightening regulations on who can buy a home in the first place, the availability of loans by the government to help people stay in their homes or ever-popular TV shows featuring people who flip houses for profit, be forewarned that there are not just a ton of properties out there waiting to be grabbed.
Next in consideration is knowledge about the potential property. Buyers may not realize the bank or lender may have never set a single foot onto the property. So the lender may have no knowledge about the condition of the property, particularly its infrastructure. Are their tree roots growing into the home? Is the plumbing or heating and air conditioning shot? Is the house a toxic mold factory? Not only do lenders not often have little knowledge of the property, but they flat out are frequently not in the mood to undergo repairs of the structure before you buy.
Finally, there is financing. The bank or lender may put certain restrictions on the mortgage such as avoiding title costs, limiting discount points or appraisals and inspections that are normally picked up by the seller. And as a consequence, suddenly that 18% discount has been reduced to perhaps 3 or 5.
Further Advice Regarding Buying a Foreclosure
Experts caution that if you are still considering buying a distressed property, that you:
- Carefully check the title to be sure it is clear and has no red flags. Has the property changed hands multiple times within a short period of time?
- Look carefully for liens
- Be particularly jealous with inspections
Lastly, consult a good, multi-listing MLS realtor. A good MLS realtor will be knowledgeable in zoning and other issues in the area that might prevent you from adding a second story to your purchase via a contractor or building and second guesthouse or pool. Consulting a good realtor is essential to buying nearly any property, but perhaps more with a disclosure. They can help you negotiate a reasonable price with your lender and tell you whether you are getting a good deal or not.