Part 1: Risks
If you ask homebuyers why they are looking at foreclosures, the answer often is, “Because they’re such a good deal.” The word “deal” for me is on par with other four letter words which I won’t mention (but you can guess). Deal is a selfish word. Deal is one of those temptation words. What kind of deal comes with no risk? You get a deal on that car – do you really expect that ugly orange color to be good at trade-in? You get a deal on clothes – are you sure they’re going to be in style long enough to wear them more than a few times? What kind of deal do you get on food that has less than 1,000 calories or 200% of your daily sodium allowance? Are those really a deal?
Well, buying a foreclosure home CAN be a good deal for those buyers who have some cash to put into the houses when they buy them. As a realestate agent I have discovered that many buyers have a down payment in this market but not additional money to fix up everything they feel needs to be done in the first 6 months they own the foreclosure.
Hidden defects are what homeowners fail to factor into their budget for improvements. When you cannot turn on utilities before closing you cannot check heating and air conditioning or kitchen appliances. The water is off so you can’t check the plumbing or the well and septic.
Risk = reward
Naiveté = financial distress
Delusion = lack of equity
Next – Part 2: Buying the benefits of buying a foreclosure