Is a Foreclosure Purchase a Good Idea?

No matter where you live, the topic of purchasing a foreclosed home is bound to come up in social settings. That’s because there are so many right now, and there are so many people promoting the foreclosure investment opportunities. But are foreclosures really a good deal?To determine if buying foreclosures is for you, you have to understand the process as well as the pros and cons of this type of sale. So let’s begin.

What are the benefits?

How much of a bargain you are getting on the home depends on local conditions. In many instances foreclosed properties are being directly compared to other properties that are in foreclosure which means the foreclosed properties are actually setting the market value.Even so, buying foreclosures intrigues many.

Richard Geller, CEO of says "There’s little risk and can be great rewards if you purchase the property in a short sale." A short sale is when a home is sold in the pre-foreclosure phase. The lender agrees to the sale and ends up taking less than the amount owed to the lender. Basically, the lender is letting the homeowner out of the mortgage in order to have the home be sold to a third-party buyer.

There are several other benefits to buying foreclosures, whether it’s a short sale or in any other phase of the foreclosure process. Lower purchase price equals a lower required down payment. Of course, foreclosures typically have motivated sellers who are eager to climb out from beneath the debt, and with that there can be motivated lenders who are hoping to not end up owning a property and then trying to sell it. However, don't expect any negotiations for repairs to be done to these properties as they truly are sold  in "as is" condition.

The disadvantages

Here’s what you should consider before you leap with both feet and your wallet into this marketplace.Some foreclosures have what is called a “cloud on title”. In other words, there are liens or judgments against them. Some buyers get what they think is a “steal” at an auction, only to find out later that the property has significant liens attached to it and now must be paid by the buyer which can result in taking a loss on the property.

Keep in mind, especially with properties sold at auctions, you will be taking the property sometimes “sight unseen” and “as is”. Both of these should make you think before you slap down the money to buy a foreclosure. There can be a considerable amount of work to rehabilitate the property.

Foreclosed-on homeowners may sell fixtures out of the home before they are evicted. “So you may find a foreclosure home without air conditioners, dishwashers, light fixtures — anything they can sell  to get some extra cash.  Buyers should be prepared to do out-of-pocket work on the home to get it to the condition they want.

Your best bet is to go into the foreclosure market knowing that while the properties may not be perfect, the end result can be the best for all — a discounted property for you, the investor, and helping a neighborhood to reduce potential blight.