There were 933,045 foreclosures in the United States in 2016, the lowest annual level since 2006. This figure represents approximately 0.7 percent of housing units in the nation. There is a multitude of bargain hunters who believe they are getting a great deal by purchasing one of these homes. After all, the bank is apparently desperate to sell, so it’s only natural that you’ll get a home for less than market value; right?
Wrong! While a foreclosure home could represent a good investment for someone interested in becoming a property magnate, it is usually a poor decision for anyone looking to live in the property. In this article, I look at five reasons why you should avoid a foreclosed home and choose a move-in ready property from a reputable homebuilder like Taylor Morrison or Shea Homes instead.
Real Estate Agents Already Passed on the Property
Unless you know more than a professional real estate agent, it is probably not a good idea to go against their judgment. Remember, agents, reject foreclosed properties which is why they appear on the market under that title. There could be any number of reasons why they chose to step aside. The property is foreclosed when the previous owner became unable to make monthly payments for 90 days, and he failed to sell it. The bank was also unable to make a sale, and real estate agents avoided it too. Why? Keep reading to find out.
You Might Not Get a Good Deal
As banks are keen to offload the property as soon as possible, surely you will receive an outstanding deal? Alas, you will face stiff competition in the form of investors looking to flip properties and banks didn’t get wealthy by losing out in deals. The first port of call for banks is any purchasing party that makes an all-cash offer or pre-approved buyers with excellent credit and a large down payment. Banks prefer these candidates to first-timers as there is less risk and they get a quick sale with little in the way of closing processes.
While the price of the foreclosed home will probably drop after listing, the bank will probably list it for more than its market value. Remember, the home was probably purchased several years ago, before the financial crisis which means its value has likely plummeted over the last few years.
You Get the Property ‘As-Is.’
When you purchase a property from a homebuilder in a traditional manner, you have the luxury of walking through the home and visualizing how you will transform it. As a foreclosed property often sits unoccupied for several months if not longer, it probably looks a million miles away from your ideal home. As there won’t be electricity to power the house, you have to schedule your visits to coincide with bright and sunny days so you can actually see what is inside!
As the previous owner was almost certainly not spending money on maintenance, the property will be in fairly poor shape in all likelihood. Buyers of foreclosed homes don’t receive property closures so there’s a chance you could walk into a money pit. Also, there is little or no possibility of receiving a discount on repairs. What seemed like a good deal is suddenly a mistake as you realize there is $15,000 worth of repairs. When you walk into a new home in a homebuilder’s community, there are no such worries.
This is an extension of point #3 but foreclosed properties are always a risk because no one has lived in the property for several months at least. If you purchase the property in an auction, you won’t have any idea what faces you when you step inside. For example, if the pipes froze and cracked in winter, you could find heavy water damage. Pests such as rats routinely take up residence in abandoned properties so it could take some time to make the home habitable.
Don’t underestimate the rage shown by the former owner of the property. After all, if you paid tens of thousands of dollars only to become homeless, how angry would you be? As well as taking everything of value from the property, the former owner could cause damage as an act of retribution. It is not unusual for the buyer of a foreclosed home to walk into an empty shell.
You Can Get a Great Deal without a Foreclosed Home
The number of great home builders offering affordable, clean and furnished homes has increased rapidly in the last few years. The likes of LGI Homes, Shea Homes, KB Home and Taylor Morrison specialize in creating brand new properties in luxurious surroundings. With interest rates hovering at around four percent, you could purchase a move-in ready home at a great monthly rate. Things get even better if you can afford a down payment of at least 20 percent of the purchase price because you avoid the dreaded PMI.
Although a foreclosed home can seem like a great deal on the surface, you’ll usually find a lot of problems when you dig deeper. As well as walking into a home that is a long way from your personal tastes, the cost of repairs is going to be substantial in most cases. Why take the risk when you can purchase a low-cost, high-quality move-in ready home built by one of America’s great homebuilders?