BLOG: Top 10 Myths About Buying a Foreclosure

The below information can be found in numerous places around the web, but most of our Patch.com readers may likely never find it on Google. So I thought it was worthwhile to post it here because there is so much interest in getting a "deal" by buying a foreclosed home.

Sadly, getting a deal is not always the case. However, the following can save you from making a fatal mistake on YOUR purchase.

Trulia.com and RealtyTrac recently surveyed US adults to get some insight into what people think is involved with buying a foreclosure. Here are the Top 10 Myths that came up, and the facts to set the record straight:

1. Foreclosures need a huge amount of work – 92 percent of consumers expressed that if they bought a foreclosure, they would be willing to make home improvements after they closed the deal, with 65 percent being willing to invest 20 percent or less of the purchase price. Although stories of foreclosures missing plumbing and every electrical fixture are very memorable, many foreclosed homes need only the (relatively inexpensive) cosmetics that many new homeowners want to customize no matter what kind of home they’re buying: paint, carpet, etc.
2. Foreclosures sell at massive discounts, compared to other homes – Almost every member – 95 percent – of the surveyed group expected to pay less for a foreclosed home than for a similar, non-foreclosed home; 18 percent had realistic expectations of less than a 25 percent discount.  However, 36 percent expected to receive a bargain basement discount of 50 percent or more off the value of a similar non-foreclosure. Reality check: While foreclosures might be discounted massively from what the former owner paid or owed, their discounts are much more modest when compared to their value on today’s market and the prices of similar homes.
3. Buying a foreclosure is risky – 49 percent of respondents said they perceived buying a foreclosure as risky. And yes - buying a foreclosure at the auction on the county courthouse steps can have risks, including the risk the new owner will take on the former owner’s liens and other loans.  But most buyers looking for foreclosures are looking at bank-owned properties, which are listed on the open market with other, 'regular' homes. Buying these homes is really no more risky than buying a non-foreclosed home.
4. You can’t get inspections on the property when you buy a foreclosed home – County auction foreclosures don’t often offer the ability for buyers to have the homes inspected. But virtually all bank-owned properties for sale on the open market not only allow it, but encourage buyers to obtain every inspection they deem necessary. This is because almost every bank sells their foreclosed homes as-is, and they want to avoid later liability. It’s in everyone’s best interests to make sure that the buyer has full information about the property’s condition before they close the deal.
5. There are hidden costs to watch out for when buying a foreclosed home – 68 percent of survey respondents who felt there is a negative stigma to buying a foreclosure expressed the concern that buying a foreclosure poses the danger of hidden costs. At some foreclosure auctions, there are buyer’s premiums and other hefty fees that can really add up and take a chunk out of the effective savings the buyer stood to realize. However, when you buy a bank-owned property that is listed for sale with a real estate agent, the closing costs are the same as they would be if you bought a non-foreclosed home. Overdue property taxes, HOA dues and other bills left behind by the defaulting homeowner are cleared by the bank which owns a foreclosed home before it is sold on the market, though these items should be watched out for if you buy a home at the county foreclosure auction...

Read the rest of these tips at Trulia.com here.

There is also a new method for expunging relevant credit report records if you have recently suffered a foreclosure or short sale. This tactic may allow you to buy another home almost instantly, even in the same neighborhood, keeping the same schools, neighbors, etc. To learn more about it, contact me.