The primary reason anyone buys a foreclosed property is to get a good deal, because foreclosures are generally sold below market value. And because foreclosures are available in any and all price ranges, foreclosures provide the opportunity of buying a larger house or one in a more desirable neighborhood than would have been affordable otherwise.
But there are many pitfalls to consider when buying a foreclosure, as well:
Properties are often in states of disrepair, with neglected maintenance issues, missing appliances, and even damage from vandalism.
If you bid on a home at auction, you can’t get it inspected before you buy it.
You may face stiff competition from seasoned buyers or investors also looking for a good deal.
You could become responsible for debt connected to the home, such as unpaid taxes or home equity loans.
The process takes longer than a traditional home sale, with extra paperwork, slow response times and a lot of red tape.
Ask yourself these questions to determine if a foreclosure is right for you.
1. Am I financially prepared? There’s a lot more cost involved than just the great purchase price. You have to be prepared for extensive repair costs, inherited liens, and unexpected surprises that can pop up along the way.
2. Can I live in the house while it’s being fixed up? Extensive renovations could prevent you from moving in, and you’ll need to have somewhere else to stay. Unless you’re planning on owning two homes, this could affect your ability to buy.
3. Is my timeline flexible? Foreclosure purchases can be unpredictable, requiring you to make a quick decision one day and then wait a month for the next step. It’s nearly impossible if you have timeline contingencies, such as the sale of your current home.
4. Can I handle the ups and downs? The time and effort involved in completing the purchase of a foreclosed home, not to mention fixing it up, can be daunting. Make sure you’re up for the challenge before you make the move.
Foreclosures Fall to Pre-Crisis Lows
Foreclosure filings have fallen to their lowest level in nine years, with foreclosure activity below pre-recession levels in more than one-third of major metropolitan areas. A recent RealtyTrac report shows that first-quarter foreclosure filings were down 4 percent from the previous quarter and 8 percent lower than the same period last year.
At the end of 2015, 1.08 million U.S. properties had foreclosure filings, which include default notices, scheduled auctions and bank repossessions. That number was down 3 percent from the previous year, and down 62 percent from the all-time high of 2.87 million properties in 2010.