It is a common notion that bank owned homes come in cheap prices, and with good reason. You can buy them at greatly reduced prices and it is cheaper to invest in foreclosures rather than build or buy a new house. While it is definitely tempting to invest in them, you should also be aware that there might be hidden factors which could increase your purchase price.
Quality Of Homes
In auctions, banks normally would aim to recoup the balance on the unpaid loan as well as the interest rates that the property should have earned were it not for the previous owner’s default. Typically, this is reflected on the amount of the initial asking price in the auction. There are also other fees that are taken into consideration in pricing bank owned homes including lawyers’ fees and home association dues.
There are about half of the foreclosed properties in an auction that remain unsold at the end of the day since there are more money owed on them than their actual value. When these happen, the foreclosed property will revert to the bank’s or lender’s ownership, thus, the term real estate owned (REO) home.
What You Should Remember
It is important for you to know that when you purchase bank owned homes in an auction, they are actually being sold as is. This means that upon purchase, the property passes to you in whatever state or condition it is in. If there are any tenants still inhabiting the property, you will have to take care of the eviction process. And if there are other outstanding obligation, tax deficiencies and other liens on the property, then you will have to assume such burden.
All these considerations are enough to make you think that it would be perhaps much better if you purchase an REO home than buy a property in an auction. What you should understand is that buying REO property demands that you compare the prices first in order to make sure that you are getting your money’s worth.
The physical state of the property is also important. If the house will require a large amount of money to be repaired, then it may not be wise to pursue the purchase. Make sure, too, that there are no inserted clauses in your contract of sale that put additional burden on you. To ensure that you are well-protected and that you understand the fine print of the contract, consulting a lawyer is imperative.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.
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