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Are Foreclosed Homes Cheaper to Buy?

June 21, 2019

Buying a home can be an exciting endeavor, and the housing market today presents myriad options to prospective homebuyers, including short sales, estate sales, foreclosures, and traditional home sales. Because buyers are often searching for the most reasonably priced home that also fits their desired criteria, buying foreclosures is often a wise recommendation.

Typically, foreclosed homes sell for less than non-foreclosed homes. While each situation is unique, two major reasons typically explain why foreclosed homes sell at a discount.

Inferior Home Conditions

A foreclosed home is frequently distressed and in inferior condition compared to non-foreclosed homes. Often, the previous homeowners stopped taking care of the house once they began to fall behind on their mortgage payments. Since foreclosed upon homes are sold as-is, the buyer will often get a discount due to the property’s physical condition.

If a home has reached foreclosure, it may need structural repairs or other maintenance. Since foreclosure is often a lengthy process, it’s likely that the property has been sitting empty for months or sometimes years with little to no upkeep. This can lead to many issues including broken pipes, old wiring and rodent infestation. The buyer should have the property professionally inspected.

The homebuyer should also consider the very likely possibility of inheriting any debt associated with the home. The previous homeowner may have owed for unpaid tax obligations, construction loans or home equity lines of credit. Homebuyers must fully understand any potential financial burdens that they are assuming above and beyond the mortgage.

Seller Differences

Another reason why the foreclosure pricing market is considerably less expensive than homes in good standing, is due to the difference of who is selling the property. In non-foreclosed markets, the homeowner will often perform minor repairs and price their home competitively. Since banks are the owners of foreclosed homes, they will be less personal and less competitive when selling the property. The bank’s goal is to mitigate risk by selling off as much inventory as possible.

In addition, buyers can also enjoy the benefit of closing the transaction quickly. Foreclosed homes often move off the market in a timely fashion, because they are attractive deals and the bank is motivated to sell and minimize its risk. 

For those looking for a great opportunity to build equity and create value, purchasing a foreclosed home can certainly turn those desires into reality.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Altisource Online Auction, Inc., Altisource® or any  Altisource affiliate. The foregoing content is not intended to constitute, and in fact does not constitute, financial, investment, tax or legal advice by the author, Altisource Online Auction, Inc., Altisource or any Altisource affiliate.

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Investment Guide

Edgard Negron

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