Are you planning to buy a foreclosed house? Then you should go through this article at least for once. These properties may have several advantages but also offer various disadvantages, which you should know.
I feel like foreclosed properties can be an excellent offer for homebuyers. But savings aren’t everything that you get from a foreclosed home. Foreclosures can be a smart option for the homebuyers. You can simply fix the properties and sell them for a better profit.
But as I said, foreclosed homes also have major drawbacks. If you plan to buy one, you should know the risks. This will help you move forward with proper planning.
In this blog, I will discuss the unpredictability and risk factors of foreclosed properties. So, let’s learn the downsides of foreclosed properties, which you need to know before buying foreclosed homes.
The Reason Behind A Foreclosure
Everyone dreams of buying a new home. But, when making a real estate deal, whether for buying or selling properties, you must learn about specific terms.
Foreclosure is among the terms that you must know. Especially when you are planning to buy a foreclosed property, you should be aware of the terms.
What is foreclosed home?
If a person borrows a loan from a bank or a lender and buys a property or a home, the homeowner is bound to repay the borrowed amount within a timeline.
However, there can be instances where the person fails to repay the amount. In such cases, the home or the property is considered a foreclosed property.
There are various significant reasons behind the foreclosure, such as:
- Sudden loss of employment
- Unexpected medical bills
- Financial crisis, etc.
All the reasons I have listed above somehow affect the owner’s financial condition. As a result, they become mortgage defaulters, leading to foreclosed homes.
The Cons Of Buying Foreclosed Homes
As a buyer, you may face several risks when buying foreclosed homes. Thus, it is crucial to do thorough research before you make the final decision.
Problem With The Property
The property may carry a compensatory discount, but its overall condition can be damaged.
Suppose the owners are still occupying the home. In that case, the house may be poorly maintained. If the owner is falling behind in repaying the borrowed money, how can you expect them to keep up with regular maintenance and repairs?
Some people may be angry due to the foreclosure and vent their anger on the property. In such cases, you may have to remove a few appliances or fix many things.
The Hidden Costs
The auction properties usually come with back taxes and lien issues. The Internal Revenue Service, IRS, the state, or creditors often impose such issues on the properties.
So, when you plan to buy an auction property, you must first pay whatever is owed to the government. Only then can the buying process move further. This can include some extra costs for your desired house.
This only applies to auctioned properties. As for the lien, banks pay off if it is attached to the property, and then the property is ready for reselling.
A Slow-Moving Process
When it comes to real estate, complications mean a lot of paperwork. The process of foreclosure generally requires a lot of paperwork. You may have to complete additional documents for the closing process.
This may not be convenient enough for the buyers. It might take a longer time than the buyer initially expected.
The owner’s lender’s approval is essential for a short sale. This can further delay the closing process. The houses can also be severely damaged, leading to poor appraisals. As a result, the buyer fails to secure a desired loan.
On the other hand, banks also delay the overall process of communication. They also take a slow approach toward the REO properties.
Not Seeing The Home Before Buying
The inventory of foreclosed properties can go quickly. Now that technology has come into play, online bidding is making a huge impact on the increased interest in the property.
There are two specific factors that you can never avoid dealing with foreclosed properties: increased interest and competition. This comes from the occupants, investors, and professional house flippers, which increases such factors.
When someone lists a foreclosed home at a price, it attracts many potential buyers. Ultimately, this leads to a bidding war, which can increase the overall cost of the property.
If you plan to buy a foreclosed home, you can also submit bids on the properties you like. Just don’t feel discouraged if someone else surpasses your offer. You can always check the inventory and wait until it reappears.
Need For Several Repairs
Previous occupants often fail to keep up with the maintenance. This further leads to severe damage to the entire property. Thus, you may have to opt for serious work for a foreclosed home.
The occupants leave properties in despair. They do not just take the appliances with them; they also damage most of the basic fixes. As a result, you end up paying a small fortune for such repairs and adjustments.
I suggest you check if you have the proper financial support for such a massive repair.
Competitive Market Place
You may find a lot of people who are competing for such foreclosed homes. Thus, it becomes difficult for you to buy one right away. The market is very competitive. Thus, the inventories often empty quickly.
Since the pandemic, everything has been taking place online. Even a foreclosed home auction takes place online, which has increased investors’ interest in a particular property.
Currently, due to limited availability, buying foreclosed homes has become difficult. Furthermore, this increases the competition in the market.
Need For A Large Amount Of Cash
When planning to buy a foreclosed home, you may need some cash to pay upfront. That, too, is when you are buying it at an auction.
In some cases, cash bids are very crucial for such events. Now, there can be instances when you decide to buy the property from elsewhere other than auction. You will still be required to have proper finance to buy the foreclosed homes.
Former owners often leave their houses in poor condition. When you buy the property, your major finances go for the fixing and repair. So, you may need a lumpsum amount of money for the entire process of buying foreclosed homes.
A few things that you should consider before buying foreclosed homes
As I said, the foreclosed home market is a highly competitive marketplace. If you are trying to stay ahead in such competition, I suggest you collaborate with a reputable real estate agent. It is a niche-based market. Thus, you will need someone who is experienced in such a sector.
Secondly, you can also consider consulting with an attorney. They can explain the process to you and guide you through it.
The next thing you should consider is finding foreclosed houses for sale. Yes! I know you have your real estate agent for the research, but you can also do some research yourself.
You can always find a foreclosed home list online. There are designated websites for such information. So, do your research according to your desires and needs.
Another thing you should never skip is getting appraisals and conducting inspections. This way, you will know how much the house is worth. Always remember if the house gets a lower appraisal, it will be difficult for you to get the desired loans.
Additionally, you will have a clear idea about the exterior and interior condition of the house. It is critical to ensure that the plumbing, roof, or electrical system is working.
The Bottom Line
Foreclosed homes are always beneficial for you, especially when saving your money. Despite the advantages, there are some potential risks that you should always consider.
You must consider the repair cost once you decide to buy a foreclosed house. Moreover, I would always suggest thorough research before finalizing one specific property.
Not always can you roam the premises or inspect the indoors of your foreclosed homes. But you can drive to the property and ask the locals about it.
You can even ask your real estate agent to share a detailed record of the foreclosed home.
I hope the blog has helped you learn about the cons of buying foreclosed homes. Don’t forget to contact us for more property-related topics and discussions.
Happy house hunting!
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