Many buyers think they want a foreclosure because it means they’ll get a property at a great price or even a steal. This is not necessarily true. Banks price foreclosures not at the amount the prior owner owed on the mortgage, but on a current market value appraisal. Even if a bank forecloses on a property where the mortgage owed is $70,000, if an appraisal is ordered and comes in at $100,000 – then the bank will list the property at or slightly under $100,000. Foreclosed properties are not necessarily “steals” as buyers seem to think.
It is buyer beware. Many foreclosures have been neglected by the home owner or vacant for years. Go into buying a foreclosure assuming the worst case. Base your offer assuming that the systems are damaged or nonfunctioning and that you’ll need to put work into the house to make it livable. Hope for the best but assume the worst.
You can inspect the property after the bank accepts your offer, but chances are it’s “accept or reject” the property. The bank won’t make repairs and in most cases won’t allow you, the buyer, to make any repairs prior to closing. This is a problem especially in FHA or USDA loans where the lender may require repairs to be made prior to closing. If this is the case, you could lose the house as the loan will be rejected. Cash or conventional financing may be your only options.
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