Advantages and Disadvantages of Buying a Foreclosure

Buying a foreclosed house can mean you get a great deal, but there are some things to watch out for, too.

Foreclosure Auction

Advantages:

  • Property will be sold for outstanding mortgage balance owed to foreclosing mortgage holder -- this can be a low price for the property.
  • Cash payment requirements reduce competition.

Disadvantages:

  • Auction purchase price must be paid in cash on the same day as the auction -- no mortgage is usually allowed.
  • No inspections allowed; as-is sale.
  • Buyer may take property and owe other liens, back taxes and mortgages. Buyer must research state of title prior to auction.
  • Bank cannot provide disclosures as to property history/condition issues.
  • If bank believes auction will not recover a good price, bank may buy the property at auction.
  • Property condition might be suspect due to damage done by upset homeowners.
  • No commissions or attorney’s fees will be paid; buyer must pay for their own representation.

Post-Foreclosure Bank-Owned Property REO (Real Estate Owned by Lender)

Advantages:

  • Bank is motivated to get property sold and will negotiate price, down payment, closing costs, escrow length, etc.
  • Title will be clear; buyer will not take on any liens, mortgage or back taxes of prior owners.
  • Inspections and mortgage financing are allowed within normal due diligence/contingency period.
  • House will be vacant.
  • Property will usually be listed on MLS; bank will pay real estate agent's commission.
  • REO sales close within a normal escrow period of time.

Disadvantages:

  • Bank will not agree to do any repairs; as-is sale.
  • Bank will usually require additional paperwork.
  • Bank cannot provide disclosures as to property history/condition issues.

Advertisement

Zillow Real Estate Search


What do you think?

See Also