Foreclosure Sales Can Be Risky

With the National Association of Realtors® estimating that over 1 million homes will end up in foreclosure during the next couple of years, prospective buyers might view the situation as a means of snapping up a residence at a bargain price. However, experts note that foreclosure sales can be dicey, with the riskiest deals involving homes purchased at auction. While this format offers the greatest chance of a deep discount, buyers must provide payment at the time of the sale, making a deal without having the property inspected or an assurance that the current residents will vacate the premises. Once the bank takes possession of homes not sold at auction, buyers can purchase directly from them in a real estate owned (REO) transaction.

While inspections and title insurance are possible, buyers are not likely to receive tremendous discounts or get lenders to respond in a timely manner to their offers under these circumstance.

Those who scan public default notices and approach struggling home owners to inquire about purchasing a dwelling before it ends up in foreclosure assume the least amount of risk, experts say. And in most instances, they need only offer more than the mortgage balance but less than the market value to secure the sale. However, with large inventories of new homes in some markets providing leverages to those in the market for a property, buyers may not need to focus on foreclosures to get a good deal.

Source: USA Today, Christine Dugas (03/30/07)