Many buyers consider foreclosed homes when looking for their next house. While an attractive option because of price, this may not be a good fit for every buyer. A home foreclosure is like the repossession of a vehicle or other valuable possession. If a previous owner failed to make their payments on time, the loan holder moves to take the property back.
Foreclosure laws vary from state to state, so it’s imperative to do your research before making an offer or waiting for the property to become available. Depending on your location, the process can take months to years.
There are two categories of foreclosed homes and knowing the difference can help improve your negotiating power:
- Bank owned. Once a bank has finalized the foreclosure, they typically put the home up for auction. Potential buyers will make their bids, allowing the lender to recover some of their financial loss.
- Real estate owned. If a property fails to sell at auction, the home is generally listed traditionally. A specialized agent will show the house to interested shoppers and can result in a great deal after not selling initially.
Get the Most Value
Investing in a foreclosed home comes with unique risks over a traditional home purchase. For instance, the property has likely been vacant for a considerable period as the bank tries to settle their legal issues. Empty buildings are prone to vandalism, theft, and dangerous conditions like the development of mold or mildew.
When researching a property, it’s crucial to hire an inspector and receive bids from contractors if repairs are necessary. Use the reconditioning costs to build your negotiating power before making an offer. If you know of a homeowner facing foreclosure, you can sometimes score a great deal while helping them alleviate their financial struggles.
Read the Fine Print
Some states institute a law called the “right to redemption,” which means property owners who have been foreclosed have a period to buy back their home. Ensure the process is completed before attempting to buy a house at an auction or from a bank. You may find yourself moving in and fixing up your new purchase as the previous owner strives to earn it back.
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