Are foreclosures a good deal?

<<>> The market was heating up in this area. This was a time when homes were selling within one month or less. Foreclosures were on the decline in this area, because home owners could sell their home in less than a month before they got in real financial trouble. My assignment was to appraise a home in the South part of the city in a nice suburban neighborhood.

The owner was selling his home, because the market has come to a complete stop for foreclosure homes. His full time job is working with the banks to resale foreclosure properties. He told me that it was so slow, that he couldn’t afford his home, so he was selling his home and moving into one of his rental homes. His reason? Homes are selling so fast that it basically put him out of business. If owners got into financial trouble they would simply sell their home within one month or less.

When I got back to the office, an experienced real estate appraiser in our office was finding the same things, and they didn’t even know each other. He would study all of the homes in a particular market and compare them with bank owned homes. Guess what, the foreclosure homes were selling for the same prices as non-foreclosure homes. The reason why is because the market was willing to pay full price for what they thought was a good deal on a bank owned home, regardless of the lack of the improvements.

Do you think that you will always get a good deal on bank owned homes? My experience as a real estate appraiser, speaking with other real estate appraisers and actually biding on bank owned properties, proves that you may be fooling yourself if you think that you will always get a good deal buying foreclosures.

There are two reasons that foreclosures may not be a good deal. First, the bank usually purchases an appraisal from an appraiser before the home is placed on the market. This means that the bank usually has a pretty good idea as to what the home is worth. Second, banks will not normally fix up the home as they are not in the business of fixing up homes, so they will sell the home “as is.” If you are not careful, you could buy the problems of the previous home owner with no real discounted price.

So, are foreclosures always a good deal? Absolutely not, they could be the biggest mistake that you’ve ever made.