We've all heard tales of people buying foreclosed homes at bargain prices. Websites and infomercials claim that you can find foreclosures for pennies on the dollar. It sounds too good to be true and in most cases it is.
While it is possible to find a good deal on a foreclosed home, it takes lots of research and persistence. Most foreclosed houses sell for only slightly below market value, and those that sell for much less are few and far between. There are also certain risks when dealing with foreclosed properties.
Many foreclosures are not in very good condition and this is sometimes one of the reasons that foreclosures sell more cheaply. The former owners almost certainly went through a time of financial hardship and that often results in a poorly maintained home. The owner may even purposely cause damage to the home when he realizes that foreclosure is imminent.
Another reason that a foreclosure may be offered at a lower price is because it is in a bad location. Whether you're planning to use the home as a residence or rent it out, location is important. A home that is undesirably located will be more difficult to rent at a decent price, and living there could prove to be unbearable.
There are legal issues that the purchaser of a foreclosure may have to deal with as well. If the previous owner still lives in the home, he will have to deal with eviction. It is even possible that the lender may not have full ownership of the home, resulting in major legal woes. Tax liabilities may be transferred to the new owner as well.
Foreclosures sold at auction pose their own unique risks. Prospective buyers often do not get the opportunity to inspect the property for sale, so they have no indication of what condition it is in. The full purchase price is often due in a matter of days, if not on the same day. Buying foreclosures at auction is a risky proposition for the buyer and is usually not a good idea for first time homebuyers.
If you have the time and patience to actively look for good deals on foreclosures and the experience to know how to handle them once you've bought them, they can be worthwhile. But they are usually not ideal for new homeowners. There are many problems that can occur with them and a new homeowner does not need to be exposed to the risks involved.