While home sellers curse the occurrence of foreclosures in their neighborhoods, home buyers have taken advantage of the cheap homes on the market for years. Regular home sellers are typically limited by the equity in their homes when selling – banks are willing to accept whatever the market is willing to pay. Banks can (and will) reduce the price until the home sells. The sales price of a home in 2006 is pretty much irrelevant to the bank.
While foreclosures were a great deal back in 2008, 2009 and 2010, they are now not necessarily always the best deal. As the supply of homes in many areas are limited, the prices between a regular resale, a short sale and a foreclosure are pretty well in sync. In many areas like Arlington, Falls Church, McLean and Vienna a foreclosure will go at or near market price (minus a price adjustment for condition.)
I often get excited calls from first time homebuyers asking to see foreclosure listings they have seen listed online at amazing prices (listing will usually say the source is realtytrac.com.) Most of those foreclosures are properties being offered at the courthouse steps (basically, a true foreclosure.) The price listed is typically the outstanding loan balance of whatever bank is foreclosing. In the vast majority of cases the home will be bought back by the bank at a price higher than that and often above market – the listed price is not a price you can offer and get the home for.
Back to foreclosures… What most potential purchasers don’t realize is that a foreclosure is cheaper for a reason. They are generally As-Is with a 7 to 10 day inspection period. So, within the inspection period you can ask for repairs and the bank may agree to fix things like homeowner association violations, broken windows, major roof items, major HVAC, major electrical and major plumbing items. They will generally also treat active termite infestations. They will not replace that broken counter-top or install that missing light fixture in the bath.
You can get a great price on foreclosures that would be characterized as “dumps”. Usually in horrible conditions – often with mold and smelly wet basements, leaking roofs, bugs everywhere. To tackle those projects you need a lot of experience to accurately assess the current value, the renovation cost and the potential future sales price. There is great potential for profit – but also great potential for misery and financial ruin.
Many homebuyers use FHA loans these days and you can purchase foreclosed properties with an FHA loan. You are typically restricted to the properties that are in the better condition as the FHA appraisers(so does non-FHA appraisers) have specific guidelines to follow in regards to the condition. Foreclosures in a good condition that allows for FHA and conventional financing sell close to the market value.
If you are looking to buy a foreclosure for investment or as a home, please give us a call at 703 560-3424. We help buyers get great deals on foreclosures all the time.