Is Buying A Foreclosure Risky?

February 26, 2012

Comparing the average prices of foreclosure sales to MLS sales one could easily come to the conclusion the 20% – 25% average sale price difference is worth the risk. Looking past the averages there are other considerations you need to consider because averages do not do apply well on individual transactions in real estate.

Reader Question: Does the possibility of a lower price of a trustee sale out weigh the risks of a unusually quick decision without the normal due diligence process? – Rich V. Phoenix, AZ

Monty’s Answer: Hello Rich, thanks for asking the question. There is no cut and dried answer, but I will do my best.

Comparing the average prices of foreclosure sales to MLS sales one could easily come to the conclusion the 20% – 25% average sale price difference is worth the risk. Looking past the averages there are other considerations you need to consider because averages do not do apply well on individual transactions in real estate.

To succeed at a foreclosure auction, you have to be accountable and understand property values well. You have to be decisive. You have to understand the sub-market neighborhood the property is located in, and lastly, you have to be working with a trusted veteran in the foreclosure market. There are many people trying to cash in on the foreclosure boom, and many of them are learning at your expense. There are 3 possibilities; you get lucky and score far under the market; you end up with some marginal savings; or something goes terribly wrong and you end up underwater.

So the answer is: Under these circumstances, there are opportunities and buying a foreclosed property can and does work. Good values are possible, but, there is a lot more to it than just appearing at the court house steps with a checkbook. Be prepared for the risk of surprise when you discover the home’s condition. Also, remember that while buying on the courthouse steps has risks, many of the same risks are present in a normal transaction.

I hope this is helpful.

Monty