Good Deal or Bad Deal?

One of the interesting things about being in real estate in the Lake Norman area, and probably anywhere else, is that I am always surprised by the number of clients I work with who want to consider foreclosures as a normal part of their home search. For a lot of those clients, a foreclosure is just another search field to select in the MLS database, like ranch or 2-story, 1 or 2-car garage, or master up or down. It’s just not that easy.

Few people stop to consider that there are different challenges to face when buying a foreclosure. Apparently by virtue of the name “foreclosure” alone, it is assumed that one can get a great deal on someone else’s misfortune. Here’s some things to consider as you ponder this topic:

If you recall my conversation (see below in “What’s Going On?”), I talked about a time when buyers were expected to bring money to the closing table, and would then have equity building sooner than today’s buyers, who have been on the “100% financing, no closing costs” train, up until it’s recent derailment. Back when you saved and put money down on the home, bank foreclosures, though rarer, had the potential for being a good deal, since the banks could list for less than market value as long as they covered the outstanding loan balance plus costs. A lot of the foreclosures out there now are priced at market value, because homeowners got caught up in creative financing, couldn’t cover ballooning interest rates, and didn’t stay in their homes long enough to pay down any principal.

Here’s another thing to consider: A lot of the folks that are in foreclosure because they couldn’t afford to pay the loan probably couldn’t afford to keep the property in good condition, either. So you may find yourself in the situation of spending money on repairs that take your investment higher than market value.

My recommendation to buyers, especially first-time buyers, is that while on the surface a foreclosure might sound like a good way to get into an affordable home, their are some strong advantages to buying a house that is not in distress. One big one when dealing with a seller with equity in the property is that there is room to negotiate price. The seller’s motivation level and current market conditions can be an advantage for a buyer with good representation. Also, unlike a foreclosure, usually sold “as is,” buyers can conduct inspections and negotiate repairs with a seller in a regular real estate transaction.

My best bet for you first-time buyers; save a down payment, find a good lender, get a good Realtor®, and go find a home that has been taken care of. Leave the foreclosures to the investors with the skills, money, and experience in that arena.


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