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Buying A Foreclosure – A deal or not?

According the the financing experts, housing prices are beginning to climb and there are a large wave of foreclosures the the banks are ready to bring to the market.  These homes have been held by the bank in various stages of the foreclosure process for a number of years now.  You would expect these homes to sell for “pennies on the dollar” and allow you to purchase a great home for a great price.  That is a logical assumption but it is just that, an assumption.

There are many factors that determine the market value of the home.  As far as appraisals go the largest single factor seems to be the recent transactions in the area of the subject property (that is the home listed for sale).  What have homes of comparable size been selling for in the past six months?  Note, I didn’t say comparable size and comparable condition.  At present appraisers do not for the most part take into account condition or features.  That means that foreclosure in the nice neighborhood you like is probably overpriced do to the values of the sold properties around it.  The “discount” you receive by buying a foreclosure is not enough to pay for the repairs the home needs.

When you consider buying a foreclosure you need to take the price, determine what needs to be repaired and what needs to be replaced and add what it will cost to fix it up.  The sum of these must be less than the market value of the pristine home next door that has been maintained by it’s owner all along for you to get any kind of deal.    Otherwise you are far better off buying either that pristine home next door that has never been distressed or a new home.   If appraisers took into account condition of the property, you would probably see banks fixing homes up before they sold properties as foreclosures but you generally don’t see that.  The banks sell the property “as is”.  They leave it up to the buyer to know what’s wrong with the property and fix it.  That is if they want to live in the home.

Do yourself a favor,  buy a new home or ask your Realtor if the existing home you are considering has ever been distressed.  It is information you need to know to make an informed decision.

About Tom Greenawalt

Tom is a Licensed Builder in the State of Florida. He has been in the construction industry for 35 years building new homes in Pittsburgh, Washington DC, and Chicago before moving to Central Florida. The majority of Tom's career has on detached housing for entry level and first time move up buyers. He was with Maronda Homes for over 15 years.

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