Advantages and Disadvantages to Foreclosures

When looking for a house we often come across those one or two homes with a listing price that seems too good to be true. How is that possible and what is the catch is usually what we think. Foreclosed homes are usually the ones with those prices. These types of houses are ones where the current homeowner has failed to pay their mortgage or other things like property taxes. The bank or lender then takes possession of it to try and sell it. Now, buying foreclosures can be tricky business, but can have advantages as well. If you are debating on purchasing this type of home, consider the following areas of the foreclosure process to evaluate the upsides and downsides of your potential investment.




Pre-foreclosure Foreclosures

A pre-foreclosure is the period of time after the seller has received their initial notice that their missed payments will ultimately result in a foreclosure. This window of time in this process has its pros and cons for potential buyers. Take a look:


Pros: At this point in this stage, the current owner isn’t drowning in their mortgage and will be more flexible and determined to achieve a sale as they know they are heading in the foreclosure direction. There will be more motivation from the seller on negotiation of prices to any repairs that may be necessary. You will also get the inside scoop of the house. It is at this time that the seller must disclose the current condition of the house. This is certainly helpful to the potential buyer in order to avoid any surprise problems or costly repairs. 


Cons: Because you are in the early stages of foreclosures, the price that you are looking at may be low, but not the lowest. While the seller may be struggling with payment, most times their lender needs to approve the listing price. If this is the case for you, consider the balance between a great deal versus the value of the home. Really inspect the condition of the home, pull permit history, and title searches to cover all areas. More often than not, a house heading towards foreclosure could not have been properly maintained. 


Auction Time

The next point in this process are when the foreclosures are available for auction. This happens when the lender is allowed to try and recover what it owes by being allowed to auction off the property. Check out these advantages and disadvantages when it comes to auctions.


Advantages: Possibly the biggest advantage here is you could get a house for way below the market value. The lower you get it for, the more you have to invest it and add to the value if you wish to sell it later on. An auction takes significantly less time than homes in pre-foreclosures. This process is much more black and white with less negotiations. If you have a good chunk of change saved up, this may be an advantage to you as the more you have for a cash bid, the easier it will be to secure your “new” property.


Disadvantages: Cash offers are what’s accepted for auctions. That is why it is important that you have a decent amount of money saved up. There also may be auction fees involved. Additionally, in this stage of the game, when a property is sold by way of auction, it is sold as-is. This could be quite risky as the bank is not able to provide information on condition or history. This means any issue with property history or lien is the responsibility of the buyer.



If the home does not get any bids at auction, it goes into a post-foreclosure. This is where the lender is now able to attempt and sell the property in the current market. 



The bank is going to be willing to do a lot more in order to get the property sold. In this stage it would be wise to negotiate with the bank, and negotiate well. The bank will reassess areas such as escrow, down payment, agent commissions, and closing costs just to name a few in order to get it off their hands. Another upside to this one is you will have 100% certainty of clear title as you are allowed all of the regular inspections.  



You may have a clear title on this one, but that does not mean the property is clear. At this time this is still considered an “as-is” house and that means still cannot disclose the history or condition.


Got your eye on a foreclosed property in the market? Connect with Home Buyers Express to sell your current house quickly! Speak with our experts on how we can take the commissions, repairs, extra fees, and most important the stress, out of the selling process. With over 20 years in the real estate industry, we tailor each experience to the individual client whether they are buying or selling their home. Head over to our website at and learn more about the services we offer to assist with a seamless buying/selling experience.


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