Advantages and Disadvantages of a Real Estate Foreclosure Sale

When people buy a house, they usually do so with a mortgage. A requirement for having a mortgage is that buyers make payments on time every month over the life of the loan. If they don’t, the house will eventually go into foreclosure and the bank will take control over it. The bank will eventually sell the real estate through a foreclosure sale. For buyers, foreclosure sales have some advantages and disadvantages.

Lower price

Foreclosure sales are often priced lower than a regular sale. That’s because the bank simply wants to get rid of the house. Although you want to maximize the price you can get, you’ll be happy to get your money back and get rid of the responsibility of having to take care of the house. Foreclosures often sell for at least 10 percent below market price, and sometimes even more.

Opportunity to generate quick capital

Because foreclosure sales are priced below market, it gives buyers the opportunity to build equity quickly. By getting a bargain, the buyer automatically has equity in the home to begin with. Foreclosures often need some work and are priced to reflect that, so buyers willing to make necessary improvements and repairs can quickly build equity.

Issues

Although they are bargains, foreclosure sales can bring a lot of trouble. Banks don’t want to put money into houses, so buyers should expect to buy properties as-is and expect to have to put money into them. Foreclosures can also come with issues related to previous owners. The bank may have difficulty removing such individuals and may have to forcibly evict them, which may delay the sale. Banks are also wary of foreclosure loans, so anyone looking to buy one should make sure they have a large down payment and good credit. A better option is to buy a foreclosure with cash, which can help speed up the process.

While a foreclosure sale is not an ideal way to sell real estate, either for the owner or the lender, it is sometimes necessary if the owner can no longer keep up with the mortgage payments. For buyers, these homes present great opportunities, whether for first-time homebuyers or investors looking to get a deal on a potential rental property or buy a home to fix up and sell for a profit.