About 10 years ago it seemed that almost every home listing was either a short sale or foreclosure. Fortunately, the US housing market has recovered and these distressed properties are less common. Still, there are foreclosures or REO (real estate owned) homes for sale and buyers who are searching for bargains tend to be drawn to them. But are they really as good a deal as they seem? Before writing that offer, consider the pros and cons of buying a foreclosure.
- The biggest pro is that they are cheaper, typically about 5-7% cheaper. Banks do not want to hold onto property they’ve been forced to take back. They want them sold and price them aggressively to get offers, normally multiple offers.
- The bank is impersonal. When negotiating, a bank will only consider the dollar and cents of the deal; they are not emotionally involved.
- The biggest cons is the condition of the home. The previous sellers clearly were in some kind of financial distress and chances are good there is deferred maintenance or other problem with the home.
- The bank is impersonal. This can work against you as well. The bank does not care who buys the home and will not be swayed with emotional appeals.
Buying a foreclosure can be a real deal or a real dud. Consider the pros and cons carefully before investing in a foreclosure.