What to Know When Buying a Foreclosure House

By
Real Estate Agent with Roots & Wings Realty Group / eXp Realty TREC #702048

Due to their comparatively low prices, foreclosure homes can be incredibly attractive to buyers. In some cases, it may be a smart investment, but be aware that many risks are associated with a foreclosed property, and buying one may cost you more money in the long run.

If you’re thinking of buying a foreclosure home, be sure to keep the following these following points in mind.

They tend to need a lot of work.

Keeping a house in good condition costs money. If a homeowner couldn’t afford their mortgage payments, there’s a good chance they couldn’t afford the expenses associated with its upkeep. As a result, foreclosure homes are often in need of extensive repairs.

The costs to fix issues like structural damage, mold, pest infestations, and faulty plumbing or electricity can add up quickly. In many cases, a foreclosure home’s low buying price may be canceled out by these expenses, making it more economically viable to buy a house on the traditional market instead.

The process can be slow.

Buying a foreclosure home requires a lot more paperwork than a typical sale, and as a result, the process can take a long time. If you need to move in a short time frame, buying this type of property will not be a realistic option for you.

Short sales tend to move incredibly slowly, as they involve communicating with a property's current owner and lender. The longer either of these parties takes to respond, the farther your closing date gets pushed back. You may also need to wait longer if the home you're buying has a redemption period.

Inspections might be inhibited.

In many cases, a foreclosure home’s utilities will have been turned off for a long time, making it impossible to inspect the house properly. While you may be able to pay out of pocket to turn the utilities back on for an inspection, this may cost you somewhere in the neighborhood of $1,000—no small price for a property you may ultimately decide not to purchase.

Buying a home without having it inspected is always a gamble, and the risk is exceptionally high with foreclosure homes, which tend to have a lot more baggage. Without an inspection, there is the possibility that you'll discover deal-breaking information about a house after it's too late.

Auctions require purchasing sight unseen.

If you purchase a home in a foreclosure auction, you’ll need to do it sight unseen. Buying a house sight unseen means closing without the opportunity to tour the property in person. While you can perform a drive-by to look at the home’s exterior and photos or videos of the interior may be available online, there is only so much you can learn about a house before stepping inside it.

Purchasing sight unseen means you’ll likely be unaware of any issues lurking in a home, especially if you cannot have an inspection done. When in doubt, assume that any potential problems a home can have may be present in the one you buy.

Any excellent deal will have competition.

A house with a low price tag will typically attract many buyers, and foreclosure homes are no exception to this rule. Foreclosure auctions almost always have multiple bidders, and the better the deal, the higher the competition.

This means you'll need to take extra care not to go over budget. Even if a home's starting bid is low, it's easy to get caught up in the excitement of an auction and end up bidding more than the property is actually worth. Be sure to limit how much money you're willing to spend, and don't exceed it.

Depending on the type of foreclosure, there might be a redemption period.

Sometimes when a home is in foreclosure, the homeowner is given a redemption period. This means they have an opportunity to pay back their debts with interest to reclaim their home—even if it has already been auctioned off.

In Texas, tax foreclosures come with an average redemption period of two years, and HOA foreclosures offer a redemption period of 180 days. If you’re buying a property that was in foreclosure for either of these reasons, be aware that until the redemption period has passed, the home’s previous owner may end up taking it back from you.

Conclusion

When buying a house, be cautious of a deal that sounds too good to be true. A foreclosure home may seem appealing at first, but you’ll need to thoroughly weigh its pros and cons before you commit to purchasing one. Always do your due diligence, and be sure to work with a real estate agent who has experience with foreclosure transactions.

Posted by

Cheers,

Rae Hoffman

 

Katy Texas Real Estate Agent
#RootsandWingsRG
Roots & Wings Realty Group
powered by eXp Realty

 

// SRS, NHCS, e-Pro, RENE, PSA

Comments (10)

Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

All great info. One correction I'd offer is that in a short sale, you're not actually in communication with the seller's lender, the seller doesn't have a lender.
You're actually communicating with the seller's lien holder, and sometimes a third party investor that bought the bad debt is making that final decision. Occasionally an intermediary that calls themselves a "short-sale negotiator" steps between your buyer and the lien holder too. Though,  I found 99% of s.s. negotiators to be less educated and capable and a huge waste of time & money for the sellers and me representing the buyers. Most were charlatans.

So glad those years are behind us, 2007-2011 were brutal times. We'll always have distressed properties, but hopefully no repeat of the The Crash.

Sep 18, 2022 07:23 AM
Roy Kelley
Retired - Gaithersburg, MD

This is good information to share.

Have a great day and a productive week.

Sep 18, 2022 09:59 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Sep 19, 2022 03:05 AM
Nick T Pappas
Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Rae, definitely good info...lately the foreclosures I've come across have actually been in decent shape, BUT, I think they are the exception rather than the norm. Foreclosures are not for everyone, but deals can be found!

Sep 30, 2022 01:02 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Rae Hoffman this is excellent advice.  On the lending side I advise my Borrowers that financing can sometimes be a challenge on a foreclosed property.

Oct 10, 2022 12:08 PM
Ray Henson
eXp Realty of California, Inc. (lic. #01878277) - Elk Grove, CA
Realtor

Lots of great information!  We used to have all kinds of foreclosures when I first started in Elk Grove.  They used their own contracts and they were nothing like our standard contracts.  I even had a couple clients hire attorneys to go through them.  It was quite a market, especially when you factor in all of the short sales at the time. 

Oct 11, 2022 06:20 AM
Walter DiLoreto
PHP Houses - Lake Mary, FL
Real Estate Short Sale Specialist

Great information! Thanks and have a great week!

Oct 11, 2022 08:10 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good evening Rae Hoffman ,

Glad to see your post featured..good info on buying a foreclosed property. Fortunately we have few of those around in Austin, TX. You are so right..be cautious if a deal sounds too good to be true!

Oct 11, 2022 07:31 PM
Adam Feinberg
Elegran - Manhattan, NY
NYC Condo, Co-op, and Townhouse Advisor

I hope I never have to go through that ever again. I am President of my small condo association- and had to foreclose on a neighbor for not paying her common charges (sort of like HOA fees in the rest of the nation) and special assessments. We tried to work with the owner before taking legal action- but she denied our offers. It took nearly 13 years from initial default until a new owner took possession. The former owners only defense was that the legal fees are too high...which means more of a battle in the court- which also means more legal fees.  We ultimately took a huge hit- but at least the tumor has been removed from the building, and the new owners are paying their bills. 

Oct 13, 2022 08:41 PM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

During 2008-2012 I did a lot of short sale listings, some short sale purchases and lots of purchases of homes being sold by lenders who had foreclosed on the properties. Very interesting but a very different economic situation than one we find ourselves in now.

Oct 13, 2022 10:57 PM