(DailyAnswer.org) – Considering whether to buy a foreclosed home raises many more questions than standard real estate transactions. Making a clear assessment of your options may be difficult without a strong foundational awareness of what the advantages and disadvantages of buying a foreclosed home really are.
In early 2023, foreclosure filings rose 10%, making a foreclosure sale easier to come by. Before taking the plunge, there are numerous pros and cons you should understand, and we’ll discuss the main considerations you should make when looking into the foreclosure market.
Foreclosure Pros & Cons — Key Considerations
For the buyer, the major point to remember is that your judgment may be colored by the foreclosed market’s attractive financial incentives and whirlwind timeframes. Yet beneath the hurried sales and lower price points, it’s not only possible, but likely, that any of the following could alter your original plans.
Legal Complexity
Be aware that foreclosed home listings may be in a legal gray area, and availability is much more subject to change than in the normal housing market. Ensure the legal information you receive about the property is unbiased, rather than rely exclusively on one party or another.
Depending on whether you’re in a judicial or non-judicial foreclosure state (and some are both), federal and state legal matters could, at any time, disrupt what would otherwise be a straightforward transaction. Banks might be overeager to advertise a property, only to be stalled or even lawfully estopped from taking possession of the property by an unforeseen turn of legal events. Keeping up with the legal drama can be very distracting from trying to secure a home.
Tricky Timelines
Because a foreclosure process is dictated by contractual, administrative, and lawful processes alike, the timeline for a foreclosed home is much more convoluted than a standard purchase. To keep it simple, always be aware of what stage of the foreclosure process the house is in:
- Pre-foreclosure
- Auction
- Post-foreclosure
The key thing for the buyer is that the selling party changes, depending on which phase a foreclosure is in. Pre-foreclosures are when homeowners are trying to escape a mortgage default. If you don’t keep to their timeframe, you may lose your chance at their offering price and need to renegotiate with the bank — or even totally lose out, if the bank has an entirely different purpose for the foreclosure.
With time pressures come stress, and you’ll be at the mercy of either the seller’s mortgage timeline or the bank’s own, depending on where in the process you are.
Financing Issues & Unknown Property Conditions
The three-stage timeframe listed above also alters accepted payment types, which impacts your financing options. In the normal real estate market, you simply find which lending options are available, select one, and begin shopping. With foreclosed homes, it can seem like you need to go back to the drawing board with each property you’re considering.
However, it doesn’t need to be so difficult if you keep a few pros and cons in mind:
- You have maximum financing options (and bargaining power) when working directly with a seller not yet foreclosed on. If you want a thorough inspection, though, you must act quickly.
- During auction, only hard cash offers are accepted. You’re more like to find a screaming deal, but the upper limit on your purchasing power is fixed. Further, the bank won’t provide disclosures on property history or condition, so the risk is much higher.
- Post-auction, you can once again use standard financing options — but the price is now subject to market forces. The bank is still motivated to sell, however, and they will likely cover more, or all, of the closing and administrative fees involved.
Deciding if the Foreclosure Market Is for You
It’s impossible to say if buying a foreclosed home is worth it. Deciding for yourself requires clarity on your intentions and risk tolerance.
Is an extremely competitive auction price worth the risk of an as-is home? Will you be just as eager to purchase as the pre-foreclosed owner is to sell? Should you accept the much more difficult legal matters involved, or stake your claim on the open market, instead? How can your family achieve the best aspects of foreclosure opportunities, and leave the worst?
These are just some of the questions you should consider when looking into the foreclosed housing market.
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