Chapter 8. Apples and Oranges (How to Determine Whether Buying a Foreclosure Is a Good Deal)
Updated: Dec 19, 2021
Everyone knows about Foreclosure very well. And most of the potential buyers would think about buying a foreclosure at least once.
A foreclosure house is confiscated by a bank(or a lender) because the house loan could not be paid back. Because it is owned by a bank and should be liquidated quickly, people have a perception that foreclosure houses are cheaper than ordinary houses. However, this perception not always correct. In fact, a good foreclosure house is very rare.
Therefore, Today, I would like to write down the contents of the Zillow talk book with my own experiences.
To make sure if a foreclosure house deal is a great deal, you need to compare apples to apples. And to make an apples-to-apples comparison, you also need to find a house that is as similar as the subject property. Please make sure at least the following things are similar.
Make sure that both houses are in the same block. If they face the same direction, it would be even better.
Not only the sq ft size, the number of bedrooms and bathroom, but also the number of parking bays, and all the other details must be similar as possible.
The condition of the houses should be similar as possible.
However, there may be a lot of problems with the condition of a foreclosure house. Think about it in this way. If you don’t have money to pay the mortgage even though you will be expelled without the payment, will you have money for home maintenance? It is a simple answer, right? In fact, about 99% of foreclosure homes that I visited for Fix and Flip investments were inhabitable conditions at least for me. For reference, holes in drywall or plumbing lines with poured concrete are common things that you can find from foreclosure houses. Also, most of the foreclosure houses have serious water damage as well.
The problem is that most foreclosure houses are sold “As-Is”. So, it is difficult to negotiate the repair cost or credit once a seller signs a sales contract.
Therefore, a foreclosure house buyer MUST scrutinize the condition of the house and estimate the repair cost extremely detail. Most of the time, if all the costs including the purchasing price are accumulated, foreclosure deals are not as great as people perceive.
Therefore, if you find a house that you really like, and the house is a foreclosure, please compare apples to apples, and calculate all the costs before you make a decision.