Pros and Cons of Buying a Foreclosed Home

Written By Scott Kessman
Last updated August 11, 2021

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Personal Finance
April 16, 2021

Simple. Thrifty. Living.

When your house hunting, you may occasionally come across a foreclosed home. Foreclosed homes can be sold and bought in much the same way as any other home on the market. However, one thing that stands out right away is the low price. A foreclosure is often sold at a lower price than other homes on the market. Sometimes that’s a good thing, and sometimes it isn’t. Consider the following pros and cons of buying a foreclosed home so you can make an informed decision.

Not sure exactly what a foreclosure is and why they are cheaper? It’s usually because it is being sold by a bank rather than a homeowner. A home goes into foreclosure when the homeowner has stopped paying their mortgage. The bank then repossesses the house and attempts to sell it. However, the bank is merely looking to recoup its losses. This could be the remaining balance left on the mortgage which can be much cheaper than the current market value.

The low price tag is, of course, very attractive when you’re looking at homes to buy. But you’ll definitely want to consider more than the price. That’s because foreclosed homes often come with a lot of unknowns, and can end up costing you a lot more than you thought.

Price and Equity

The low price is definitely a pro. But in addition to buying a home at a lower than market value price, you will also benefit from getting instant equity. This can be very valuable if you are in a market where home values are rising very slowly. If you plan to sell in a few years, you’ll be in a much better position to make a profit.

Better Neighborhood Options

Are the homes in a particular neighborhood too expensive for you to consider? Well, if you’re lucky enough to find a foreclosed home for sale in that neighborhood, you could move where you want without paying the typical costs associated with the area.

Easier to Negotiate the Price

The bank doesn’t want to sit on a foreclosed home for too long. Many will be open to negotiation on the price. Some banks will even pay for renovations or necessary repairs in order to secure the sale.

Less Competition

Some housing markets are extremely competitive. However, most new home buyers are seeking homes that won’t require a lot of work. They want to be ready to move in and enjoy their home. Foreclosed homes don’t always have the luxury of being in excellent condition. While this is actually a con, it is also a pro, because it means less competition from other homebuyers.

Inspections Aren’t Always Possible

Most times, banks will sell a foreclosed home as-is. You won’t even be allowed to have an inspection performed. Buying a home like this can be a risky gamble. The price might be great, but you might have to spend a lot more on repairs after the purchase.

Potential for Extreme Damage

Sometimes the poor condition of a foreclosed home is purely cosmetic. A fresh coat of paint or some new carpeting might be all that you need to do. But sometimes, the damage could be much worse. Leaky roofs, problems with the plumbing, or other high-cost repairs could turn your inexpensive home purchase into an expensive nightmare.

There Could Be Liens on the Property

When you buy a foreclosed home as-is you also get any liens that were placed on it. This will make you liable for paying even more money, and your prospected savings might be a lot less than you thought.

Vacant Homes Attract Unwelcome Visitors

If a foreclosed home has been empty for too long, it may have some guests you wouldn’t want to be sharing the home with. Roaches or other insects, mice and rats, and possibly even squatters might not take too kindly to being pushed out of their shelter.

Sometimes the former owner might still be present, and you’ll need to wait for them to move out before you can take full possession of the home. Evicted homeowners can be angry, and may purposely cause more damage to the home on their way out. Or, they may find a way to pay off their loan and reclaim the house, in which case you will lose it.

Investors Are Always Seeking Foreclosures

While regular home buyers tend to stay away from foreclosed homes, they are very attractive to investors. Expect competition from investors seeking to flip homes or purchase another property to serve as a rental. Investors often come prepared with cash to purchase the home, which banks will favor.

So, it certainly appears that there are many more cons than pros when looking at foreclosed homes. However, if you know what to expect, and you are smart about what you’re looking for, you might still manage to get a good house for a good price. It really all depends on your own expectations, and whether you have spare cash for any repairs that might need to be made.

A financial cushion is important, especially for homes that need a lot of work. But if you spend a lot to fix up a home, you won’t make as much back on your investment when you sell, unless home prices rise significantly.

Overall, buying a foreclosed home isn’t something you want to rush into. Expect the unexpected and try to research as much as you can about the home through public records. You might learn about liens or other issues with the home that may save you from making a mistake. It can also be a great help to work with a knowledgeable real estate agent, preferably one who has experience with foreclosed homes. They can give you more insight into a home and help you make an informed decision.

About the Author

Scott Kessman

I possess a strong 20-year background in marketing, digital marketing, and advertising. However, writing has always been a true passion of mine, and after working in corporate offices for many years, I turned my passion for writing into a full-time job. As a contract content writer for the last 12 years, I can craft engaging and informative content about a wide variety of subjects. I have also written and published two fantasy novels and a collection of short stories.

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