I am asked this question over and over, and the answer is, “Probably not”.
If you pick up a newspaper it’s hard to avoid seeing something about the increase in foreclosures. It’s a fact that foreclosures are increasing, particularly for properties that were purchased with sub-prime loans. Defaults on sub-prime loans and the foreclosures on these properties by the lenders are on the increase. Many forecast that things will get worse before they get better.
Let’s assume for a moment that the forecasts are right. What do these predictions mean to you if you are looking to buy? Can you find an undervalued house? We know that banks really aren’t in the real estate business. They don’t want properties, they want their loans paid. Since bank loans are determined by market value and sub-prime loans were typically no-down-payment loans, the amount the banks are owed is not much less than market value of the houses pre-2007.
Although listing prices on many houses are coming down many foreclosed properties had values established during our housing price boom. As a result, banks are now holding loans worth more than the current market value. The banks then really have no choice but to price the property downward to the current realistic market price. However, they aren’t knowingly going to price the property below market value. So you need to realize that this is the same market price that would be available if you shopped the entire open market inventory.
The other thing you have to consider when looking to buy a foreclosed property is property condition. I complete Broker Price Opinions (BPO) for banks on multiple properties every week. Some of the properties are new construction purchased by a speculator and are in pristine condition. Others need work, either cosmetic or more. With foreclosure properties you are buying in “as is” condition. Utilities are turned off so you have no opportunity to do a complete inspection of the home prior to settlement.
Buying a foreclosure property also takes time. When you make an offer directly to a homeowner you can reasonable expect an answer to your offer within 24 hours. With a bank owned property you can wait days and even weeks to get a response. Patience is the key. You are dealing with a financial institution and they aren’t going to jump just because you have made an offer on one of their properties.
Many agents won’t show foreclosure properties because of the headaches involved. Work with an agent who has experience in dealing with the bank and their representatives. And remember to go during the day. You won’t be able to see anything at night!