Pros and Cons of Buying a Foreclosure
When looking for a home to buy, you’ve probably noticed that some of them don’t have a lot of information about them or many pictures to show you what you’re buying. These are typically foreclosed homes. If you’re on the edge of whether or not to buy a foreclosure, here are the pros and cons to help you make the decision.
Pros of Buying a Foreclosure
- Cheaper Price
- Financial Gains
- Bargaining Power
You’ve probably noticed that a foreclosed home is considerably less expensive than a typical house on the market. The price is generally about 10-15% below current market value. This could allow you to purchase a home in a neighborhood that you couldn’t otherwise afford or it could give you some extra spending money to make any necessary fixes to the home.
Buying a foreclosed home could be a great investment depending on a few factors: the price you bought it for, how much money you put into a remodel, and the location of the home. If the home goes up in value and you decide to sell, you could be making a profit.
Foreclosed homes are owned by the bank so they usually want to get rid of the home as quickly as possible. Their goal is to sell the home for a price as close to the original loan amount as possible. The longer a foreclosure sits on the market, the more likely the bank will accept a low offer.
Cons of Buying a Foreclosure
- Unpredictable Costs & Damages
- Slow Process
- Increased Demand
The bank sells foreclosed home “as-is” meaning that they don’t claim any responsibility for the current condition of the home and won’t make any repairs before its sold. Even with a home inspection, not all problems are detected before the home is bought. To be safe, you should put aside a chunk of money to be prepared for any unexpected problems.
When you buy a foreclosed home there are typically more documents that have to be filled out, which are not always timely. Response times from the bank can be slow causing you to have to wait even longer.
Because of the discounted price, bidding wars are common with foreclosures. What was once an under-priced home can quickly become a costly one. It’s important to make sure you aren’t overpaying for a home that could potentially have a number of problems.
Buying a foreclosed home takes a lot of research and organized finances. It’s important to have a good realty team to help you along the way as well. If done right, a foreclosed property can become a great home and investment.