Why Buying a Foreclosed Home Isn't Riskier Than a Regular Home Purchase

When considering buying a foreclosed home, the question often arises: is it riskier than purchasing a traditional home, especially as a first-time buyer? The answer is quite nuanced, but generally, the risks are not significantly greater than those encountered when buying any other home.

Understanding Foreclosed Homes

When a foreclosure process is completed, the home ceases to belong to the previous owner and is listed for sale by the lender just like any other property for sale. The protection for buying any home—foreclosed or non-foreclosed—lies primarily in a professional home inspection and a home warranty. These measures help safeguard you against potential issues and ensure that you have recourse if any issues arise.

Home Inspections and Warranties

A thorough home inspection is crucial, no matter what the home’s history. It should identify any deferred maintenance or potential problems with the HVAC system, water heater, electrical panel, wiring, foundation, windows, and roof. These elements should be reflected in the purchase price, and a buyer should not assume they are free. High-quality windows, such as double-pane vinyl or wooden frames, are generally more valuable to a potential buyer, but the price should already reflect these features.

Home Warranties: A Crucial Component

While home warranties are more common in certain regions, they are a useful tool for both first-time and seasoned buyers. In California, for instance, where I was first licensed to practice real estate, home warranties are quite prevalent. However, in Oregon, where I have been licensed for the past nine years, they are less common. Essentially, a home warranty provides coverage for major systems and appliances, such as HVAC, central air conditioning, and major kitchen appliances, but not for smaller items like toasters.

A typical home warranty package, costing around $500, covers these essential systems and appliances for 12 months, and the warranty company can choose to repair or replace them at their discretion for a “trade fee” of $75 to $100. If a system, such as a water heater, is at or close to the end of its expected lifespan, you do not need to worry about replacing it within the first 12 months of ownership, as it is covered under the warranty. Some warranty companies also offer the option to extend the coverage for subsequent 12-month periods, often at a reduced cost.

The Pros and Cons of Buying Foreclosed Homes

Buying a foreclosed home can be a smart financial move, especially if you’re not in a hurry and can wait out market conditions. In British Columbia, Canada, for example, the risks associated with buying a foreclosed home are relatively low:

The house is typically in as-is condition at the time of possession, which means any issues should be identified and accounted for before signing the contract. Owners have the opportunity to pay off their debt to the bank until the property reaches the foreclosure court, which means there is a chance the home might still be sold to the original buyer. While foreclosed homes used to offer great deals, as property values have risen, this is less common now. However, patience and strategic timing can still result in good opportunities.

Using a Realtor with Foreclosure Expertise

If you decide to purchase a foreclosed home, it is advisable to work with a real estate agent who specializes in dealing with foreclosures. These experienced agents understand the unique nuances and requirements of the foreclosure process and can help you navigate the transaction effectively. They can also provide valuable guidance and insights that can benefit your purchase.

Overall, while foreclosed homes come with their own set of considerations, the risks of buying one are not inherently greater than buying a regular home. With careful planning, a thorough inspection, and potentially a home warranty, you can find a great deal on a foreclosed home without taking unnecessary risks.

Keywords: foreclosed home, first home, home warranty