Advantages and Disadvantages of a Real Estate Foreclosure Sale

When people buy a house, they usually do so with a mortgage. A requirement of having a mortgage is that buyers make payments on time every month for the life of the loan. If they don’t, the house will eventually go into foreclosure and the bank will take control of it. The bank will eventually sell the real estate through a foreclosure sale. For buyers, foreclosure sales have some advantages and disadvantages.

Lower price

Foreclosure sales are usually priced lower than a regular sale. That’s because the bank simply wants to get rid of the house. Although you want to maximize the price you can get, you’ll be happy to get your money back and get rid of the responsibility of housekeeping. Foreclosures often sell for at least 10 percent below market value, and sometimes even more.

Opportunity to generate capital quickly

Because foreclosure sales are priced below market, it gives buyers the opportunity to build capital quickly. By getting a bargain, the buyer automatically has home equity to begin with. Foreclosures often need some work and are priced to reflect that, so buyers willing to make needed improvements and repairs can quickly build equity.

Issues

Even though they are bargains, foreclosure sales can bring a lot of trouble. Banks don’t want to put money into houses, so buyers should expect to buy properties as-is and expect to have to put money into them. Foreclosures can also come with problems related to previous owners. The bank may have difficulty removing such people and may have to forcibly evict them, which may delay the sale. Banks are also wary of foreclosure loans, so anyone looking to buy one should make sure they have a large down payment and good credit. A better option is to buy a foreclosure with cash, which can help speed up the process.

While a foreclosure sale is not an ideal way to sell real estate for either the owner or the lender, it is sometimes necessary if the owner can no longer keep up with mortgage payments. For buyers, these homes present great opportunities, whether first-time homebuyers or investors looking to get an offer on a potential rental property or buy a home to fix up and sell for a profit.