When a home buyer or investor wants to buy a cheap house, it's easy to assume they can find a foreclosure for a deep discount. However, that impression can be somewhat false, especially if the bank has a different idea of what's "cheap," as they want to get as much as possible from the sale. If you'd really like to find a house that is cheaper, there are some places you can look besides realtor listings, such as sheriff's auctions, estate auctions, private auctions, or directly from the bank.
- If you want to buy a "cheap" foreclosure, you may have to look in a few places other than traditional real estate listings.
- You may be able to find foreclosures at sheriff's auctions, estate auctions, and private auctions.
- The best way to eliminate most of the competing buyers for a cheap foreclosure is to contact the bank directly.
Buy at a Trustee or Sheriff's Auction
You can find notices of auctions online and in local newspapers. There are a number of websites that post information on auctions, and some might offer free trials. You typically pay in full at public auctions and buy the home in "as is" condition. Smart buyers will pay a title company to do a preliminary search prior to bidding.
If there are liens such as taxes, delinquent homeowners association (HOA) dues, or superior loans, those encumbrances stay with the home. There could be a number of professionals and investors at public auctions who can reduce your chances of winning a house.
Buy a Cheap Foreclosure at a Private Online Auction
Auction houses generally advertise online and in newspapers. These auction outfits might have marketers traveling around the country holding auctions at various venues. A private auction house often will let you obtain financing to buy a cheap foreclosure. You can also bring a buyer's agent to represent you.
Some auction companies will let you inspect the foreclosures prior to bidding. However, you should be prepared to set a limit and be careful to not get carried away by the excitement created during the bidding process.
Buy Directly From the Bank
The best way to eliminate most of the competing buyers for a cheap foreclosure is to contact the bank directly. Banks are often willing to give a break on the price if a buyer or investor buys more than one home in a bulk-purchase package.
What you will find more often than not is that the bank does not want to sell to you. If the home is not on the market, but it's bank-owned, it's probably because there are tax advantages to the bank not to sell it.
Some banks maintain a list of foreclosure homes online that are available to buy. Buyers can also check the U.S. Department of Housing and Urban Development (HUD) website for a list of HUD-owned homes.
Foreclosures Listed on a Realtor Site
You can buy a foreclosure generally for much less than its original loan balance, especially in a declining market. However, that doesn't mean that the bank will sell the property for less than market value. The market value might be 50% less than the last time the home sold, but that foreclosure price will generally reflect the value of the comparable homes around it, less the costs to fix it up.
The truth is that it's rare to find a cheap foreclosure listing in the Multiple Listing Service (MLS). Every so often, if you're lucky and fast enough to write an offer, you might be able to buy a foreclosure for a little bit under comparable sales, but bargain-basement deals are typically not listed in the MLS.
That's because banks, like any other seller, want to make as much money as possible. They hire real estate agents to prepare an estimate of value and tell them how much they can get. The agent takes the condition of the home into consideration and names a price. Then, other agents in the MLS compete to buy that home for their buyers.
When buyers compete, multiple offers are the result. Multiple offers tend to drive up the price. To find a cheap foreclosure, buyers need to reduce the competition by exploring the alternatives.
Buy From Federal Agencies
You can also buy homes directly from various federal agencies, such as the Internal Revenue Service (IRS), Veterans Affairs (VA), and Federal Deposit Insurance Corporation (FDIC). You can search for homes that federal agencies have listed and learn about auctions they hold. The Department of Housing and Development has a search tool for finding homes, and you can place a bid using the site.
Frequently Asked Questions (FAQs)
What is a foreclosure?
Foreclosure is when a lender takes ownership of a home because of a defaulted loan. Default happens when a borrower misses multiple payments on a home. In some states, lenders have to go to court to get permission to foreclose on a home. Foreclosure is typically a last resort, as it's expensive for the lender and difficult for the homeowner.
What does pre-foreclosure mean?
Pre-foreclosure is when the lender has sent a notice of default to the homeowner, but the home hasn't been foreclosed on. This usually happens when the borrower has missed a set number of payments. During this time, the borrower could catch up on missed payments or work with the lender to modify their loan.