6 Things To Consider When Buying A Foreclosure

What to consider when buying a foreclosureWhen you want to purchase a foreclosure, the process is a bit different than if you were going to purchase a home that is not owned by the bank. It will do you good to learn how buying a foreclosure differs from a traditional purchase and what you can do to avoid headaches and mistakes when it comes to the purchase.
 

Get a real estate agent who specializes in foreclosures

Having a real estate agent that is familiar with the purchase of foreclosures will serve you well. In fact, a lot of times there is only one real estate professional involved in the process.  There are some realtors who specialize in such that have tight relationships with banks, so they may be aware of foreclosures coming up before they even go on public listing. Be ready to provide a preapproval letter and go in with your best offer.

Look for homes in foreclosure

Distressed properties fall into two categories: short sale and foreclosure.  Tell your agent that you’d prefer to look at homes that are in foreclosure, as the purchasing process tends to move along faster than homes in short sale mode.  You can also look yourself on websites dedicated to listing foreclosures or REO (real estate owned) homes.

Take a look at comps

Have your realtor take a look at comps in the area of the foreclosure home you are considering. You want to be sure that the price is comparable to other distressed homes that have recently sold in the area. Make your offer competitive based on the comps and give your best offer first, as there will probably be multiple offers on the table.

Look for major issues

When you are serious about purchasing a foreclosure, invest in getting a home inspection, as you do not want to purchase a home with serious structural or mechanical damage.  Home inspections might set you back a few hundred dollars, but they can potentially save you thousands and thousands of dollars down the road should you purchase the home blind and run into problems.

What is the history of the home?

Take some time and do some research on the home’s history.  You may live in a state that requires sellers to deliver a Seller’s Property Disclosure Statement (SPDS), which will serve you well in giving you pertinent information about any defects in the home and past ownership.

Check the plumbing

If the foreclosed home has been vacant for a long time, you should check the plumbing to be sure that they are not broken or leaking.  Some people have run into major problems when they purchased a foreclosure, had the water turned on, and found out that pipes are broken or find floors that have been ruined from water leaks.

Final thought

When seeking a foreclosure to purchase, do your research on foreclosures and be prepared for things that might pop up.  If you have any questions, ask your realtor and he or she should be able to give you answers.  Foreclosures are a great way to save some money when purchasing a home, as they are often reduced to a very low price, so it’s definitely worth the process in the long run.

Author Bio: Dominica is a contributing writer for Inzopa.com.  Inzopa is a private network of home buyers, owners, mortgage lenders and real estate agents.

Photo courtesy of morisius cosmonaut

About the Author Grayson Bell

I'm a business owner, blogger, father, and husband. I used credit cards too much and found myself in over $75,000 in debt ($50,000 in just credit cards). I paid it off, started this blog, and my financial life has changed. I now talk about fighting debt and growing wealth here. I run a WordPress support company, along with another blog, Eyes on the Dollar, which is another great personal finance blog.

follow me on:

Leave a Comment:

32 comments
Taynia || The Fiscal Flamingo says November 12

I spent a day looking at houses last week. Over half of them were foreclosures. There are some deals to be had. With proper due diligence, of course. You mentioned websites dedicated to foreclosures and REO. Do you have any you recommend?

Reply
FI Pilgrim says November 12

Our home was a foreclosure, we bought it 2 years ago. The difference in the process for us was the repairs that needed to be made. Dealing with a bank for the major repairs was a pain, but not as painful as dealing with the lender. They wanted everything to be perfect, but that’s not how a foreclosure works! I would hope that most lenders today are easier to work with on foreclosures, with all of them that are flooding the market.

Ours was definitely worth the effort though, we bought it basically for 25% off!

Reply
DC @ Young Adult Money says November 12

Buying a foreclosure is definitely a gamble. There’s so many problems that could happen and an unlimited number of horror stories of homeowners who ended up with a home that has a ton of problems from the get-go. I think most first-time homeowners should consider other options.

Reply
    Sean @ Inzopa says November 14

    I agree it’s probably not for first timers, but if you get a proper inspection done you should have a good sense about how strong the bones are of the home.

    Reply
kelly @stayingonbudget says November 12

These are great tips…we bought a foreclose and pretty much replaced the guts–hvac, plumbing and a lot of electrical. The neighborhood is awesome. I think with foreclosures, a well padded savings account and being willing to live in a project is a must!

Reply
    Sean @ Inzopa says November 14

    That is a great point. You need to be willing to live in a work in progress for a period of time.

    Reply
John S @ Frugal Rules says November 12

These are some great tips! We have a few friends that have bought foreclosures and have had a good bit of success while doing it. I think there really are some deals to have out there, as long as you do the homework to make sure there are no surprises.

Reply
    Sean @ Inzopa says November 14

    Homework is even more of a must with a foreclosure. You never know how the last tenant left the property.

    Reply
Holly@ClubThrifty says November 12

I am always slightly scared of foreclosures since I’m worried that they haven’t been properly maintained. But, I wouldn’t rule it out either.

Reply
    Sean @ Inzopa says November 14

    I am right there with you. There are major benefits, but I am a little scared.

    Reply
Matt Becker says November 12

We continue to think about moving to Pensacola and have been looking into foreclosures down there. There are some ridiculous prices but it’s hard not to be a little nervous about it. I think with the right amount of due diligence you can find a great deal.

Reply
    Sean @ Inzopa says November 14

    The work is worth the discount that you’d get on the home, but you’re right I’d be a little nervous too.

    Reply
Alexa says November 12

I flipped a home once and it was a foreclosure. It was actually an amazing deal. I recently saw another one of these amazing deal foreclosures pop up. I went and looked in the windows and it looks awesome. I want to try and flip it so bad but I am not sure this is the time in my life to do so. It’s taking me everything I have not to schedule a showing.

Reply
Dee @ Color Me Frugal says November 12

I think that finding the right real estate agent is a key, as you point out. Especially since we’ve never bought a foreclosure before, I think we’d be nervous about not knowing all the right questions to ask, but it would help to have an agent that was extremely knowledgeable.

Reply
Romona@Monasez says November 12

When I get ready to buy a house, I definitely think I will buy a foreclosure . I just really like the idea of fixing something up and making it my own.Plus some foreclosures only need cosmetic changes to increase value which is great.

Reply
    Sean @ Inzopa says November 14

    Now is the best time to buy foreclosures because there are so many good ones out there. We are in a period where even halfway decent borrowers got hurt by such a drastic fall in prices. There is nothing wrong with those homes they just weren’t going to continue paying for something that they were underwater by $100k.

    Reply
Broke Millennial says November 12

I’ve thought about looking into foreclosed properties when I eventually get around to buying a home. It might be more for flipping than a place to live though. Truly depends on the quality of the neighborhood.

Reply
canadianbudgetbinder says November 12

I have never seen a forclosed house for sale in our area but I’d like to see if I can start to look for homes that might be in this predicament to see what they are like. I agree that much research needs to be completed with a forclosure home and certainly something I would not go with out doing if I was interested in putting in an offer.

Reply
Ray @ Squirrelers says November 12

These are good tips, and I think that looking at comps is something that really needs to be top of mind. Actually, I’d say this needs to be the case for people buying foreclosures or conventionally sold houses, as the market really determines the value in a highly quantifiable way! Better to make a data-driven decision, especially when houses can bring in so much emotion into the process.

Reply
    Sean @ Inzopa says November 14

    Exactly. You need to see what the homes are typically going for in the area and compare it to what your total cost will be after improvements.

    Reply
Tara @ Streets Ahead Living says November 13

Don’t forget to look for purposely damaged pipes or even stolen copper wiring/pipes! If a home has been abandoned for a while, there’s always the possibility of thieves taking advantage of such a situation and doing serious damage to a house.

Reply
    Sean @ Inzopa says November 14

    Getting a home inspector is an absolute must for any home, but more so for a foreclosure.

    Reply
Jen @ The Happy Homeowner says November 13

I made out like a bandit with buying a foreclosed condo, and I’d buy another one in a heartbeat as long as my research checked out! I agree with all of your tips; with proper due diligence, anyone can make a six-figure profit on their sale like I did 🙂

Reply
Simon @ Modest Money says November 14

Foreclosures are a rather grey area. Yes there are deals to be had but there also chances that some deals might burn you. I agree with what most commentators have said, do thorough research on the property etc. It certainly pays to consult with professionals during the process – they might save you a whole load of headache & hassle later on. And if a deal is just too good to be true, its probably flawed 🙂

Reply
jefferson @SeeDebtRun says November 16

I’ve always thought it would be kind of fun to invest in a forclosure, flip it, and make a nice profit.
Of course, I have no DIY skills at all, and no money to invest in such a project. So, this likely won’t happen anytime soon.

Reply
Add Your Reply

HERE ARE THE TOOLS I USED TO PAY OFF $75,000 AND GROW MY WEALTH

This guide will show you the tools and sites I used to get control of my finances. They can help anyone and without them, I might still be in a lot of debt.
DOWNLOAD
We respect your information and never spam
5 Great Tools to Rescue Your Finances
close-link
Join Me in Learning How to Save and Make More Money (Plus a free money tools guide!)
Subscribe