Differentiating Between Inexpensive and Undervalued Properties- By: Karim El Sheikh
The foreclosure tsunami has started to subside and the prices of foreclosed properties have begun to stabilize. After the burst of the U.S. property bubble in 2008, the national economy is now beginning to show some significant signs of recovery despite the fact that the prices of homes remain relatively low compared to the pre-bubble burst. The subprime meltdown has forced many Americans into foreclosure, while others have resorted to selling at less than the appraised value to settle their mortgages and at least still make some money in the process. For most homeowners who are caught in the property bubble burst, selling before foreclosure is the best option.
Selling or buying during preforeclosure stage could be considered a win-win situation. Both the buyer and the seller could benefit from the deal. As the name suggests, preforeclosure is the stage in which a property is still in the midst of the foreclosure process. It is during this stage wherein the mortgagee has already defaulted in the payment and the mortgagor or the lender has already sent a notice of default. The foreclosure process has technically started on this stage, but the bank has not yet repossessed and listed the property for auction. More often than not, properties are undervalued when they are auctioned.
If there is not enough time and financial liquidity for a property owner to continue the mortgage payments, selling during the preforeclosure stage is the best option. In this manner, the property will not be excessively undervalued. Meanwhile, it is also the stage wherein bargain hunters can offer their best bids. The seller and buyer can agree on the price that they may think to be reasonable. On one hand, the seller can pay the lender for the remaining amortization while still managing to keep some money. On the other hand, the buyer could negotiate the price.
Many real estate bargain hunters are also investors who buy preforeclosed or foreclosed homes and resell them at higher prices. Some repairs are usually necessary before the properties could be sold again. Bargain hunters usually do not have the negotiating advantage when it comes to bank-owned homes or foreclosed properties. Properties that are subjected to auctions are typically not in their best conditions.
Of course, there is also the issue of competition among bidders. By comparison, buying directly from the owner will give the buyer more room for negotiations. Getting preforeclosed properties back to circulation at better prices is easier considering that no extreme undervaluing will occur and the stigma of foreclosure will be prevented.
An inexpensive property will not always give the best value for your money. A reo property might be inexpensive but it may not be easy to resell or make profit upon. Buying this type of property might not be the best option for real estate investors. However, it could be the best option for those who simply want to own decent homes. When you buy from property auctions, there is also the convenience of choosing from a wide range of options.
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