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A Great Deal or a Disaster Waiting to Happen?

With a housing market that continues to slump combined with constant news coverage of a foreclosure tidal wave, many buyers are looking to get in on the action. REALTORS® across the nation have reported a trend in buyers hunting for that great deal on a foreclosed home.  Although the current housing market provides some amazing homes at a great value, buying a foreclosed home can still be a risky venture. It is important to know the pros and cons of purchasing a foreclosure.

First off there are different types of properties that are generally referred to as foreclosures. A home that is in danger of falling into foreclosure but is still owned by the homeowner is known as a “pre-foreclosure”. One of the pros to buying a pre-foreclosure is that oftentimes homeowners are more motivated to sell in order to avoid going into foreclosure. This desire to sell puts the buyer at an advantage. There are cons to buying a home in pre-foreclosure as well. Homeowners may price their home too high in the hopes of paying off a mounting mortgage, taxes, or other fees. A homeowner facing pre-foreclosure may sometimes be unrealistic in assessing their home’s true value, which can lead to a price that’s too high or the possibility of a tough negotiation.

A "Foreclosure" is a property that is repossessed and sold by a lender in order to recover the amount owed on it. Purchasing a foreclosed home can pose many advantages for a buyer. Banks are usually willing to sell foreclosures at a discount in order to move them. The longer a bank holds onto a property, the more it costs them in terms of taxes, maintenance, etc. Banks want to sell and there is zero emotional attachment. Also foreclosures can be found in any price range - from a 1st timer fixer-upper, to a luxury home that may need only minor repairs and upgrades, there’s a foreclosure for everyone. Foreclosed homes also make ideal investment properties! With a little sweat equity and some smart upgrades, a homeowner can turn a foreclosure into a home that appreciates in value and will ultimately turn a profit.

There can be significant risks to purchasing a foreclosed home as well. Because foreclosures are often offered at a deep discount, a buyer may face steep competition and intense bidding from other buyers. The fast pace and emotional ups and downs of bidding on a foreclosure can sometimes be too much for buyers. Foreclosures may also need serious and expensive repairs. The previous owner may not have been able to afford the upkeep of the home or simply let it fall into disrepair when faced with the reality of being foreclosed upon. If a foreclosed home has been vacant for an extended period of time, various maintenance problems can arise, from frozen pipes, to mold, to petty vandalism. Foreclosures are more often than not sold “as-is” because banks are not committed to paying for repairs. One should always check the financial history of a foreclosed home. A foreclosure can have liens attached to it. You may find yourself having to pay costly old debts associated with the property.

The deals are out there, but many risks remain. Make sure you do your research when purchasing a foreclosed home and always work with a knowledgeable and market-savvy REALTOR®. Good luck! Dylan Taft is an Ulster County Real Estate expert and local authority on all things Hudson Valley Real Estate. For more information on the Upstate New York paradise, call Dylan at: 845.687.9292.

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