With an abundance of foreclosed homes and short sales on the market, it is tempting to believe all the pros and cons you hear about buying a bank-owned property. Below are the top 3 myths about buying a foreclosure.
Foreclosures sell at massive discounts, compared to other homes.
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.
When you buy a foreclosure, you should lowball the bank – they are desperate to get these homes off their books.
Stories in the press abound about the large numbers of foreclosed homes the banks have on their books. We’ve all heard the adage that banks have no interest in owning these properties. But the real deal is that they’re simply not desperate enough to give these places away. Also, the banks mostly service the defaulted loans – they don’t own them. Various groups of investors do, and they hold the banks accountable to selling the bank-owned property at as high a price as possible, helping them cut their losses. Many banks won’t even consider lowball offers, and many bank-owned properties actually sell for above the asking price. Before a bank will take a lowball offer, they will almost always reduce the list price first, and see if that attracts a higher offer than the lowball one they have in hand.
Foreclosures need a huge amount of work.
Ninety-two percent of consumers surveyed stated 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.”