You are likely pursuing a foreclosure sale because you want to get a great home for a low price. While this is often the case, it’s important to recognize the pros and cons of such a great deal. Recognizing the positives and negatives will make you a more informed buyer, and you may determine a foreclosure sale is perfect for you.
There are four main categories of foreclosure sales: missed payments, pre-foreclosure, foreclosure auction, and post-foreclosure. Each of these has distinct advantages and disadvantages, which we’ll break down below.
Also called a motivated seller, a home designated as missed payments is going to accept low prices to get rid of the home as soon as possible, likely well below market price. These homes have sellers who are more willing to do repairs, and they’re legally obligated to give you a history of the property’s damages. As the buyer, you can use regular mortgage financing and hire inspectors within a certain period of time, so it’s a much lower risk investment.
The disadvantages of a missed payments sale are that many of these homes still have mortgages, and the sellers may not be able to go as low in price as you’re hoping.
Pre-foreclosure, notice of default, lis pendens filed by the lender or short sale homes are advantageous in that sellers are motivated for fast sales. Bargaining is in the hands of the buyer because the seller is looking to get rid of the property as quickly as possible. Like a missed payments sale, buyers have the opportunity to do all inspections on the property and title.
Disadvantages of a pre-foreclosure can be tricky. The purchase price may be low, however, a lender’s approval of the sale price and terms may be necessary if the cost doesn’t cover the mortgage and closing costs. If the lender does not approve any aspect of the sale, you are back to square one. The short sale may also take 45-90 days for full closure.
If you’re attempting to buy a home at a foreclosure sale auction, the property is likely to sell for the outstanding balance on the mortgage. The mortgage holder is essentially wanting to make the money for the property and will thus sell at the lowest possible price. Because it’s an auction, you will likely be paying cash. This reduces the likelihood of competition of other sellers trying to buy the same home as you, as cash payment is generally a deterrent.
By the same token, the cons of a foreclosure auction include having to pay for the home up front in cash, with no mortgage allowed. The sales are also as-is, meaning you will not have time for an inspection of the home before buying. This can be tricky of the homeowners are upset by their foreclosed home and leave it in disrepair. The bank will not be able or have the knowledge to disclose the home’s condition.
If you’re interested in buying a home at a foreclosure auction, you’ll have to research the title before the auction. You may owe liens, taxes or mortgages on the property you buy. Finally, you will need to pay for your own lawyer for the sale.
Real estate owned by a lender offers a clear title, normal inspections and an already vacant home. Other foreclosure sale homes require a purchase before tenants move out. Because the bank needs to sell the home urgently, they are more willing to negotiate price, down payments, escrow lengths, etc. The bank also usually pays the real estate agent’s commission.
On the downside, banks are generally selling the property as-is. Even if your inspection shows some issues, the bank is not going to repair them. Further, they cannot provide a history of the home to you regarding conditions. As a private agency, the bank will also keep more paperwork on file for you to fill out, meaning more fine print reading for you.
If you’re looking for an inexpensive way to purchase a beautiful home or a fixer-upper, a foreclosure sale is perfect for you. But that doesn’t mean it’s easy. It’s important to do as much research as possible regarding your options, titles and financial options when purchasing a home, foreclosure sale or otherwise. For questions regarding your options on foreclosure sales or other homes, contact Scott Gordon Realty today.