Buying a foreclosed home is popular with property investors, including real estate agents and “flippers.” The property can be purchased at a bargain, renovated to make it both livable and marketable, then sold again at a profit for the investor. But this also forces competition for buying foreclosed homes between property investors and individuals who are simply hoping to buy a home to live in themselves.
Knowing how and when to buy homes that are foreclosed can be an important skill for any property investor or would-be home-owner. After all, the main appeal comes from the reduced asking price listed by the seller. Typically, this price is 5 percent lower than the price would be on the regular market. But why?
A bank that has already taken possession of the foreclosed home will be eager to sell it as quickly as it can. The longer the house stays in the bank’s inventory, the more money they could lose on it. Not only are they missing out on payments, but the bank might also have to pay for maintenance and property taxes on it while in their possession.
The bank will also have to carry insurance coverage on the foreclosed home until it is sold. For these reasons, they will be eager to get the foreclosed home off their books, even if they have to offer it at a significant discount to attract buyers.
Another reason for the lower selling price when buying a foreclosed house is because it is almost always sold “as-is.” This means that the potential buyer makes their offer knowing that they will be responsible for any work that the property needs to be livable.
Buying a foreclosed property may be a buyer’s best chance for homeownership. Or they may see it as the most viable option for living in their preferred location or neighborhood.
Still, other individual homebuyers look at buying a foreclosed home as a fixer-upper, and a way to turn it into a home that is uniquely theirs. As a fixer-upper, a potential buyer will need to consider the time, money, flexibility, and patience it takes to repair and renovate a property.