Is a foreclosure really a good buy?
The answer to that question really depends. Just because a house is listed $20k or $30k below market value doesn’t mean it is always a good deal. In addition there are several pitfalls you can fall in when buying a foreclosure.
WHAT IS THE REAL COST?
Are You Buying Someone Else’s Problem?
Let’s first look at a foreclosure from a value perspective. Just because a house is listed below market doesn’t make it a good deal. Here is a real life example. You find a $175,000 foreclosure in XYZ neighborhood and just one street over is the exact house for $200,000. At first glance it may appear that the $175,000 is the better deal. However, if you take a closer look you will find that the $175,000 house needs new plumbing because the pipes were frozen and the roof has hail damage and is no longer covered by insurance. There are also many cosmetic and non-cosmetic repairs that need to be made. After you add up the cost of repair to the property you realize it is going to cost $45,000. Simple math will tell you $175,000 plus $45,000 equals $220,000 which is much more than $200,000 for the same house on the next street. Some buyers will convince themselves they will do many of their own repairs and save lots money only to later find out that they really bit off more than they could chew and really just bought someone else’s problem.
Don’t Get Me Wrong... there are some properties out there that are a phenomenal deal and the value of the home far outweighs the cost of the house and repairs but it takes some experience to know what a good buy is and what a bad buy is. Even the most experienced investors sometimes miss their mark and end up losing money on a deal.
WHAT IS THE REAL VALUE?
Today we live in a turbulent real estate market. When looking at a property it is very important to know the REAL VALUE of a home before you put in an offer. This is especially true for a foreclosure home. Just because it’s a foreclosure doesn’t mean it’s priced properly. Banks get it wrong all the time and list a property too high. Let’s look at another example. XYZ neighborhood has 18 properties for sale. The price range of the homes is from $150,000 to $180,000. There is one foreclosure listing priced at $125,000 and it needs minimal work just some fresh paint and new carpet. Sounds like a GREAT BUY correct? Wrong… because what you did not realize is the other 18 homes have been sitting on the market from 6 months to a year and none of them have sold. In fact the last sale in the entire neighborhood was for $120,000 and it was one of the nicest homes on the block. I see this all the time in our current market. If you had based your decision on the prices of other homes in the neighborhood you would have been dead wrong and lost money but had you relied on the advice of an expert real estate agent you could have avoided this huge mistake.
ARE YOU PROTECTED WHEN YOU BUY?
When purchasing a foreclosure you will likely be issued a Special Warranty Deed. Unfortunately a Special Warranty Deed is no so special. What you would prefer is a General Warranty Deed. A Special Warranty Deed only states that the selling bank received title and that there were no encumbrances during the time they owned it. You are not covered for any encumbrances prior to the foreclosure. A General Warranty Deed guarantees clear title back to the properties origin. Most of the time a foreclosure purchase will be free and clear with no worries. There is also title insurance that will kick in if a problem does arrive but there is always a chance that something got missed and the title insurance doesn’t cover it and then you are stuck with nowhere to turn. Buyer Beware when buying a foreclosure.
The Solution to Making a Great Buy on a Foreclosure?
GET AN EXPERT!
- If you want to know the REAL COST and AVOID THE PITFALLS of buying a foreclosure…
- If you want to make sure you know the REAL VALUE and get a good deal…
- If you want to BE PROTECTED and AVOID THE WORRY of getting in over your head…
YOU NEED AN EXPERT…
You need to have someone with a vast amount of experience working in your best interest. My staff and I work with foreclosures, HUD homes and short sales every week. Terry and I have a combined 19 years experience helping home owners and investors find quality homes at under market prices while at the same time avoiding the risks involved with buying distressed properties. If you are willing to plunge into the world of foreclosures then you won’t find a better mentor to guide you along the way to a successful transaction.