Considerations For Buying a Foreclosed Home

With the average sale price of existing single family homes in the United States currently ranging in the mid to upper two hundred thousand dollar range, it is easy to see that buying a home is a major expense in the life of most people.

Looking at the price of new or existing homes, it's no wonder why potential home buyers may seek to find other options, such as considering the purchase of foreclosures and other forms of distressed properties.

Why Buy a Distressed or Foreclosed Home?

With the potential to save thousands of dollars on the overall cost of a home, the right distressed property might make economic sense for some. Many distressed properties are priced competitively because the bank or asset company does not want to continue to incur expenses to manage the now vacant home, month after month.

If a prospective buyer purchases a distressed property with few or no major repair issues, the savings can be substantial when compared with owner-occupied homes or new construction homes on the market. 

Things Buyers Should Know

When a prospective buyer is interested in an owner-occupied home, they are usually able to get detailed information about the condition and history of the home from a seller's disclosure form and from other sources. In addition, buyers are typically able to have their real estate professional obtain answers to specific questions about the home on their behalf from the current owners.

However, buyers who are looking at a distressed home will not have the option of seeking answers from the last occupant and even if the REO (real estate owned) company or bank provides some type of condition disclosure, it may not have specific information about the actual condition or history of the home. 

How Can Buyers Research Important Information About the Home?

With little or no information available through standard seller's disclosures, buyers must be willing to resort to other options when searching for condition information on a distressed home.

These options include:

• asking their real estate professional to search the multiple listing system for historical information about the home's past listing and sales data
• paying for a thorough, detailed home inspection by a reputable home inspector
• having any damage or repair issues inspected and bid by a reputable contractor before deciding whether to make an offer on the home 
• checking with the local planning and zoning or building codes enforcement office to discover any past issues with the home and get copies of past permit applications for repairs and renovations 

To Buy or Not to Buy?

Prospective buyers interested in purchasing a distressed home should consider all the information they are are able to obtain about the home, including the cost to remedy any condition issues found during the inspection process.

Since some types of mortgages cannot be obtained for homes that do not meet certain condition guidelines, prospective buyers must make certain they can obtain a mortgage for the home at an affordable rate if they choose to buy. Additionally, they will need to make sure that they can budget for any necessary repairs and renovations that will be needed prior to occupancy. 

In summary, if the home is in good condition, with only cosmetic flaws, prospective buyers can sometimes get a great deal for a home if it is a foreclosure. On the other hand, if the home is found to have substantial repair or deferred maintenance issues, especially if they involve serious structural defects, prospective buyers should think carefully and talk candidly with their real estate professional before making an offer.