The pros and cons of buying a foreclosed property
Buying a foreclosed home can be a great option for buyers looking for a good deal on the Centris website. While there are some advantages, there are also some disadvantages. Read on to find out more so you can make an informed decision.
What is a foreclosed home?
A foreclosed home is seized by a bank or financial institution when the owner defaults on their mortgage payments or does not pay their property taxes.[1] Homes can also be foreclosed due to negligence. In either case, the lender may repossess the property and sell it through a real estate to recover the amount owed.
A distinction should be made between taking in payment (described above), and a sale under judicial authority, which occurs when the debt is greater than the property value. Creditors can then recover the amount they are owed.[2]
Advantages
1. Lower price
Because banks and financial institutions want to sell the property quickly, the asking price is generally lower than for comparable properties. Foreclosed homes can be sold for 10% to 25% less than their market value.[3]
2. Potential for profit
Buying a foreclosed home can be advantageous if the home is worth more than the mortgage, or to maximize your investment if you’re looking to flip a home.
Disadvantages
1. No legal warranty
Foreclosed properties are sold without legal warranty because mortgage creditors don’t know the condition of the home or have access to its maintenance records. This means the transaction is at the buyer’s risk and the buyer will have no recourse against hidden defects.[4]
2. Poor property condition
Major repairs are sometimes necessary, and the previous owners’ departure may also have caused damages. In some cases, the house may even be worth less than the purchase price,[5] hence the importance of carrying out a pre-purchase inspection.
3. Lack of information
If the bank or financial institution seized the property quickly, relevant information about the property may not be available. This means the transaction is riskier.
Are you interested in buying a foreclosed home? If so, you can add “repossession” to the search filters on the Centris.ca website. Working with a real estate broker will make the process easier and more efficient. They are familiar with the market and will be able to guide you every step of the way.
Are you passionate about real estate? Subscribe to the Centris.ca newsletter now.
See also:
15 questions to ask when visiting a house
How to make an offer on a home
The 5 most common hidden defects