How Buying Foreclosed Property Works

Buying a foreclosed property is one possibility a lot of first-time homebuyers actually do consider for a variety of reasons. One of those reasons has to do with the price. Foreclosed properties are definitely much cheaper than let’s say, buying a new one. But what does a foreclosed property mean? Is buying one a good idea? How does it work?

A foreclosed property in simpler terms is a property that had a homeowner once but now belongs to a bank. This could be an abandoned property or one that was seized by the bank as it was foreclosed. Foreclosure happens for several reasons. One of which is when the seller didn’t continue making payments for the property due to the inability to produce income after losing a job. Another is when the maintenance bills have kept piling up that the seller/owner no longer could afford to pay them. There are also issues with the co-owner that could be a potential reason why some sellers voluntarily go into foreclosure. Simply put, a property goes into foreclosure because payments for it are no longer being made.

If you’re someone who wonders if buying a foreclosed property is the idea, the short answer is yes -- if you do your homework.

Foreclosed properties are good investments because they are sold at very low prices compared to other properties. However, foreclosed properties often make a bad impression in neighborhoods because the house prices in the area also go down, including those that are not foreclosed. A lot of buyers would most likely look for a bargain so foreclosed properties that are selling less than the market value have the upper hand. However, these properties can also become a problem because most of them are in really bad shape. But if you are going to buy one to develop, then you might need to shell out some more funds to improve the property.

There’s another way to purchase a foreclosed property at an even lower price. The traditional way of buying foreclosed homes or properties is at a real estate auction. These properties are often priced very low, however, the process you would go through can be risky because the thing about buying at auctions is that, you don’t get to inspect the property before you purchase it so improvements may cost more than you initially thought. Repairs may be costly because just as mentioned, these bargain properties are often in bad conditions. So, you may need to prepare for that.

Another way is to buy from the bank. Some bank-owned properties are much safer purchases because they went through the foreclosure process and are priced below the market price. The bank will most likely hire a local real estate agent to put the property on the market. You may also consider buying government-owned foreclosure properties, which work quite similarly to bank-owned properties.

You should remember that buying foreclosed properties is a form of investment. Just make sure you are willing to face circumstances if you ever decide to go through the route. Determine how much you can afford because budgeting matters when you decide to buy foreclosed properties especially because of the repairs you would probably need to make.