Buying a Foreclosed Home
In the current scenario, buying a foreclosed home seems like a wonderful investment. A number of economists feel that today, homes are as affordable as they were in 2004. Of course, there is a chance that people may not witness noteworthy appreciation in the price of the property for a long time. Given the state of affairs, a foreclosed home may be good purchase for people, who need a place to stay, rather than people looking at it from an investment perspective. However, aspiring homeowners need to be very cautious while buying a foreclosed home. More so, if the foreclosed property is going to be their first home purchase.
Find the Listings
The internet is the best place to find foreclosure listings. Typically, bank websites and the Housing and Urban Development (HUD) websites have detailed foreclosure listings. People should look for foreclosed homes sold by the Department of Veterans Affairs, Internal Revenue Service, Small Business Administration, U.S. Army Corps of Engineers, Customs, U.S. Marshals Service, Department of Agriculture and Rural Development, Fannie Mae, Freddie Mac, Federal Insurance Deposit Corporation, and General Service Administration. The website of the National Association of Realtors, also has a plethora of information on home foreclosures for sale. Newspapers, too, carry information regarding proposed auctions, the names of the homeowners, and the lenders.
Foreclosed homes are disposed off at auctions held on the steps of the county courthouse. People, who have considerable experience in buying foreclosures, can buy the foreclosed home at this stage. Risk-averse individuals should not buy a home that is being auctioned on account of the following reasons:
☛ The bidders are not allowed to inspect the property before making a bid, although it, certainly is possible that the home may be in need of serious repairs. The successful bidder is expected to make the payment right away and may not have time to inspect the property again. The title deed may be unclear, and there may be additional liens against property that may have to be borne by the buyer. The buyer also has the unsavory task of evicting distraught tenants from the property, and the latter may vandalize the house out of spite before bidding goodbye to a home that was once theirs. House auctions also tend to inflate the price of the property and may end up costing the bidder much more than it, actually is worth. Thus, buying at an auction is not advisable for a novice. Even a seasoned player may find it difficult to navigate the aforementioned risks of buying a foreclosed home at an auction.
☛ If the property is not sold off at an auction, the bank winds up with the deed to the property. The home that is now a part of the bank’s inventory, is referred to as real estate owned (REO). The bank may price the REO at a reasonable figure just to get rid of it. In addition to low cost, there are numerous benefits of buying a foreclosed home from a bank.
☛ The buyer can inspect the house before purchasing it. At times, banks may pay for repairs that are found during preliminary home inspection. Buying a bank foreclosed home is a good deal for the first-time home buyer, since the buyer does not have to concern himself/herself with evicting tenants. The bank also tends to negotiate with other creditors and gets rid of taxes and other liens against property.
☛ A seasoned investor may consider purchasing a tax-lien foreclosure that is the result of the homeowner defaulting on property or income tax. The home, again is sold at an auction, and it may be disposed off for as low as 60% below its market value, since the government is only interested in recovering the taxes.
❒ A mistake that most first-time buyers commit: They do not weigh the pros and cons before buying the property. Majority are lured by the price tag. A lower price does not mean the deal is in your favor. Well, this, precisely is not the real deal. Before you sign on the dotted line, question yourself on a few important variables. Does the house need major repairs; would you be refurbishing the house and renting it in the future; do you have the capital to maintain the house, if you don’t find a tenant to rent the place — these are a few questions that may help you judge your efforts and sort your options better.
❒ Inspecting the house, thoroughly, before you make up your mind to possess the property, is an absolute requirement. If you are planning to buy a foreclosed home in another city, you need to make several trips to the site and recce the place. Asking someone else to do the job for you is a waste of time. It is you, who needs to be proactive and take the final step.
❒ Know that the neighborhood matters. If there have been a number of foreclosed properties in the vicinity of the house you are planning to buy, you may be unable to cope with major repairs as the value of the house itself is deprecated. Besides, learn how the neighborhood looks during the day and the nighttime. The neighborhood that looks lively, however, does not breed hubbub, fetches potential buyers to invest in the property.
❒ Another important variable you must counter-check is the current condition of the house. The present state of the house does matter. It reflects on the degree of refurbishment the house requires and the amount you must shell out for the purpose. Besides the filth and the muck build up, there are various plumbing- and sewage-related problems that set in. Better check, if the pipes are in a good condition; if not, make way for modifications. If the problem is not sorted, there may be complications in the future. Water leaking, courtesy of the cracked pipes, which seeps onto the walls is not a pleasant situation to be in and amending the same after you have rented out the house is not an entertaining idea.
❒ What adds to the house price, is the landscape. Overgrown bushes, unkempt trees with occluded branches lead to depreciation of the property. There are times when overgrown branches gatecrash the spaces, predominantly the windows of the house, and pave the way for deterioration.
Hopefully, the aforementioned tips on buying a foreclosed home will be of use to a buyer, who is keen on buying his/her first home. Price of comparable properties is an important factor that has to be taken into account regardless of whether one buys a REO, a tax-lien foreclosure, or bids at an auction. The absorption rate, or the length of time required to sell the current inventory given the present rate of sales, also needs to be calculated, since a low absorption rate is a bargaining chip for the buyer.