As a real estate agent and co-owner of a real estate appraisal company, foreclosed homes are always on our list of topics of conversation.

  • B.Your clients they want to know if they can get a good deal on a foreclosed home.
  • yessell customers they want to know if foreclosures in their neighborhood will affect the price they get for their property.
  • customer evaluation they want to know if foreclosures hurt the appraised value of their homes.

Let’s talk about the first one today: Buyers and what they need to know about buying foreclosures.

In general, there are a few stages in which you can buy a foreclosure:

1. At the foreclosure auction.

2. After the auction, from the bank that foreclosed on the property (and got it back at auction).

3. From an investor who bought it at auction, fixed it up, and has it back on the market like a flip.

Let’s use the Travis County foreclosure auction as an example.

On the first Tuesday of every month, an auction is held on the courthouse steps in downtown Austin. Properties are auctioned off to the highest bidder as the last step in the foreclosure process. Winners must have cash on hand (or cashier’s checks) to purchase property. If they can’t pay the cash right away, the property is back on the block. The speed of the auction is amazing – only a few minutes per property, very hard to listen to or follow up on and you MUST have done a lot of research beforehand. You rarely get to see the inside of the property, or even the backyard, and you have no guarantee that the house won’t be a big mess.

Generally, most properties end up in the hands of banks and a few, very few, go to investors. These are the ones that had enough equity in them to make it worth the investor taking the risk of paying cash for a home in unfamiliar condition. That is, the investor’s research had told him that he can pay X for the property because he trusts that he can repair it and resell it for a profit.

So if a buyer can’t pay cash at auction and still wants to buy a foreclosed home, they can now buy it from the bank or investor who bought it.

Most buyers fall into this category: They can’t pay for a house with cash.

Of course, they still want a good deal!

So let’s now talk about buying one of these foreclosed homes after the auction.

Are they a good deal? After all, they are often priced below the prices of similar homes in the same neighborhood or market area.

Maybe, maybe not.

Here are some common problems with foreclosed homes:

  1. Homeowners in foreclosure often neglect to maintain their homes or simply cannot afford necessary repairs.. Whether you buy it from the bank or the investor, you probably won’t get any information about the state of maintenance (or lack thereof) on the property.
  2. Both investors and banks are in it for the $$$, so you can’t expect the materials to be of the highest quality, or even to install as well as if they were made by or for someone who plans to live in the house. Watch out for the paint on the pig, in other words.
  3. In that sense: cheap materials may not always look like cheap materials – sometimes the low cost isn’t apparent until the paint starts peeling off the cabinets after a few months, or the carpet packs up and stains much more easily than it should.
  4. Neither the bank nor an investor may know about some major problems with the house because they haven’t had it long enough. For example, if the patio is incorrectly leveled, it is possible for water to sit against the foundation after a big storm. However, the air conditioner starts to shake and roll after being on for a long time. When you buy a home from an individual owner, many states, including Texas, require the owner to disclose known problems or concerns about the property.

This list goes on and on.

If you’re serious about buying a foreclosed home, be sure to hire a thorough, licensed home inspector and get a written report.

Make sure you are present for the inspection and ask lots of questions. Don’t overlook the concerns in the report and do your own research and consult with repair experts to determine the likely cost and hassle of repairing what is determined to be broken.

If you realize anything that might suggest nasty things like water or mold damage have been covered, please investigate further or find another property.

Be sure to also compare the actual difference in price of the foreclosed home to those being sold by individual owners, either as FSBOs (For Sale By Owners) or through the MLS.

Sometimes the difference of $1,000 or $5,000 is not worth the added risk or lack of resources that comes with buying a foreclosure from someone who cannot reasonably be expected to know about flaws in the property that can only be discovered by living in it, that the bank and the investor are unlikely to do so!

That’s not to say that individual homeowners aren’t motivated to cheat the pig, but if they do, and they lie about what they did (or didn’t do, like in repairs or covering up water or mold damage), you may have options. additional legal requirements to force them to comply with the deception.

I need to add that there are some decent, honest investors/investors who take good care of the property and some who have taken nasty problems and turned them back into livable, presentable homes. Like any business, there are good people and bad people and it’s up to you to figure out which is which.

If you are in the market for foreclosure, do your research and learn what you can about the investor/investor and the history of the property so you can go into the transaction with your eyes wide open.