Buying a foreclosed home can be a profitable investment. You can potentially purchase a home for well below its market value. But finding a great deal on a foreclosed property is becoming increasingly difficult.
According to ATTOM Data Solutions, a property database, foreclosure filings across the U.S. are down 22% over the previous year. The decline in foreclosure completions is even more eye-opening. They’ve dropped by nearly 50% year-to-year. In Massachusetts, they’re down by 74% in the same period.
Fewer foreclosures means fewer good opportunities for investors. You need to diligently research a foreclosed property to ensure that it will be a solid investment. However, it’s not easy to navigate the world of foreclosure real estate transactions.
That’s why it’s best to work with a professional realtor. A Clever Partner agent can guide you through all facets of buying foreclosed properties, including helping you avoid any pitfalls. Their advice and expertise, along with their access to market data, can help mitigate the risks of buying a foreclosed home.
Here’s more on how to buy a foreclosed home in Massachusetts.
What Are the Pros and Cons of Foreclosures?
A foreclosure is when a lender (bank, mortgage broker, financial institution, or lien holder) legally takes control of a property from the owner to collect money that’s owed. This can occur if a borrower does not pay their mortgage over several months.
The advantage of buying a foreclosed property is that the lender wants to offload the foreclosed home as quickly as possible. That means they may sell for much less than the home’s market value.
While foreclosed homes usually cost less, they also have their risks. If you buy a house at auction, you probably won’t be able to view it beforehand or have a home inspection done. That means you can end up with a property that will cost much more to repair than anticipated.
That’s why it’s never a good idea to buy a home sight unseen. Always try to obtain as much information about the condition of a foreclosed property as possible. This way you can accurately determine how much money will be needed for rehab costs after the purchase.
How to Buy a Foreclosed Home in Massachusetts
Get Preapproval for Your Loan
A preapproval letter from your bank, credit union, or other lender is essential. It will outline what your borrowing limit is and how much you will be able to spend.
Do not assume that the bank or lender selling the property will provide financing. It’s a separate transaction and should be handled before you start looking for foreclosed properties.
Know What It Will Cost to Repair the Home
This is one of the biggest mistakes buyers of foreclosed properties make. They do not factor in the full cost of repairs or they underestimate what it will take to bring the home to habitable standards.
Remember that foreclosed homes are generally sold “as is.” That means you may have to spend tens of thousands of dollars for repairs after the purchase.
Know the Market Value of Similar Homes
Knowing what “comps,” or comparable homes, are selling for will help you bid competitively. But determining how much to offer is not always easy. A guideline is to subtract the repair costs from the value of a similar property and offer 80% of that amount.
If you’re looking to buy a foreclosed property, you should be aware that not every home will have a rock bottom price. Some foreclosures can be priced over market value.
Keep in mind that you will not be the only bidder. Multiple bidders can raise the potential price on a foreclosed property to a level that is not worth the purchase.
That’s why you should set a firm maximum bid price and stay within that budget. Otherwise, a potentially profitable investment can turn into a costly mistake.
Work with a Professional Realtor
The best way to determine a property’s true market value is through a professional realtor. They work and live in communities across Massachusetts, so they have a good feel for trends in the market.
They also have access to the latest housing statistics and can help guide you to foreclosed properties in neighborhoods where homes will appreciate in value. They can also help you devise a bid strategy so that you do not overpay when buying a foreclosed home.
Clever partners with full-service real estate agents from major companies like Keller Williams, Century 21, and RE/MAX. Our Partner Agents will guide you through the entire process of buying a foreclosed property so that you can minimize risks and maximize your profits.