Truth, guys, the "cons" of foreclosure auction deals?

Question

In our research about foreclosure property and the opportunities that may exist to get another home at a good or discounted price, we read lots of material that touts the advantages. Just for once, would someone give us an honest, balanced, list of possible disadvantages or "cons" we need to bear in mind?

Answer 1

Just a short list of what sprang to mind immediately I saw your question. Mostly covered in other answers I suspect.
Cons
The large cash outlay.required in a short time. Difficult to most new investors. Make sure you know the terms of the auction in advance.
Probably sold "as is" and you haven't been able to inspect. Most investors make an allowance for hidden costs.
Risk of overbidding if your research hasn't been complete.
You failed to identify all the liens and judgments and the problems "clouding" the title become your problems.
The auction was postponed at the last minute, you didn't check out the cancellations and now have penalties to pay on that unused hard money facility.
You get auction fever and overbid.
You arrive late. The auction was over in 20 minutes.
There's a redemption period and you can't get title insurance.
It wasn't a good deal in the first place and now it's yours.

.

Answer 2

You need to keep in mind that when a house has been foreclosed it is the bank selling it and the bank has no idea what the condition of the property is. You are buying it as-is. The bank doesn't know how old the roof is, if the heating and a/c work, if the foundation is cracked, etc. So, buyer beware. You are always better off paying for a home inspection, especially if it's a foreclosure. Yes, you can usually get foreclosures fairly cheap but you might have to do a lot of work to it. A lot of people, when they know they are losing the house, will tear it up. Sometimes people take out every fixture that they possibly can. So, be prepared to do work to make the house liveable or sellable. Another thing is that you might make an offer and the bank might counter but if someone comes along with a better offer before you get yours signed, they'll take the other offer. They want to get the highest price possible and sometimes they'll stall on an offer hoping another one will come in to beat the first one. That's all I can think of right off. You can get good deals by buying foreclosures just be prepared to do some work.

Answer 3

You MAY be able to get deals via purchasing foreclosures, but these opportunities are far more rare than many (particularly the late night cable TV advertisers) would lead you to believe. When they tell you that you can buy a foreclosure for pennies on the dollar, DO remember that 99 cents out of one dollar qualifies as pennies on the dollar.

In my area, we NEVER see foreclosures sold to bidders for less than the mortgage holder is owed on the property. At the sheriff's sale, the lender engages the services of a representative to bid on the lender's behalf until the price exceeds what the lender needs to obtain for the property. If the bidding does not get that high, the lender simply buys the property back at the foreclosure sale and takes possession.

At that point, the lender engages the services of a real estate firm to market the property for as high a price as they can get.

I am a real estate broker and attempted to assist a buyer client with a REO (foreclosed property) recently. Bank asking price was $175K. When the bidding war was over, the property had sold for $196K plus change.

Answer 4

The properties are generally in bad shape, it is hard to get money to rehab them if you do not have the funds to do so. Another thing to consider is y our goals with the property, is it going to be a primary residence, rental or a property you are going to sell. Another thing that can be in issue is if the properties are in below average condition then it is difficult to get a loan on them. Most conventional lenders want a home that is in average condition and will not offer a loan on a property that is not in average condition per the appraisal. One other issue wiht foreclosure auctions is many times it is buyer beware and you do not get to look at the property before you bid on it. There could be huge issues you are not aware of. I have seen it all happen.

On the other hand you can get a good deal as long as you are aware that you have to do work to get it up to where you would want to live in it, and always budget extra money because rehab deals always run over budget.

Answer 5

you should keep in mind that the house will probably need alot of work done on it. Cosmetically it may look ok, but its been my experience that people who have their homes foreclosed on- generally not always- also neglected the maintenance and repair of the home. Just something to think about.

I've seen some serious cases of plumbing problems and mold and a/c problems. With an auction you cant get a home inspector to assess the place before you buy it.

Answer 6

Here's what I found. The disadvantages of buying at the foreclosure auction often include (a) no opportunity to inspect the premises interior, (b) competition from other bidders, and (c) cash (or a cashier's check) is required. Sorry, your MasterCard, Visa, or American Express card is not welcome at foreclosure auctions.