BUYING A BANK OWNED HOME
Buying a bank owned home is a popular trend, especially here in the Cleveland area. Local home buyers are hearing about the great "deals" people are getting across the country and want to get in on the action. National media have also been feeding this frenzy. While buying a bank owned home may be a great option, there are also pitfalls that buyers may not be aware of. Here are some pros and cons of buying a bank owned home.
PROS
* Buying Below Market Value - This is the most popular reason for wanting to purchase a bank owned property.
* Less Competition - Especially on a home that needs work. A lot of buyers don't have the necessary funds to both finance AND fix up a property. Buyers with sufficient money are a rare commodity today and may find little competition when bidding on a bank owned home that needs improvements.
* Opportunity To Buy In A Desirable Area - Bank owned homes give some people a chance to buy into a community that they would otherwise not be able to afford.
* Sweat Equity - Contractors or buyers who are very "handy" can do much of the needed improvements themselves, thus creating instant equity when improving a bank owned home.
* An Alternative To Building - Many buyers who don't want the hassle of building a home from scratch find this as a viable alternative, especially in high-end suburbs. Buyers can purchase a bank owned home that has the desired space and floor plan, but may be a little "rough" and make it everything they want.
CONS
* Bank Owned Homes Usually Need Work - These homes have been neglected for a long time and often need money put into them. If you are looking for a home in "move-in" condition, a bank owned home probably isn't for you.
* Investment Of Time - In addition to money, a lot of time needs to be put into a bank owned home. In some cases, it is like taking on a second full time job.
* The Unknown - There is limited information about a bank owned home available to a buyer.
* Financing Issues - Some lenders won't give a loan on a bank owned home that isn't in decent condition. Therefore, the only way to purchase some of them is cash, which is a big hurdle for many buyers.
* Competition - There are a lot of buyers who want to buy a bank owned home, especially one that is in great condition. Nice bank owned homes priced well don't last long and often get multiple offers.
THE REALITY
While buying a bank owned home seems like an easy thing to do, and a good investment, there are a lot of misconceptions. Many buyers think they will be getting the bargain of a lifetime when buying a bank owned home. However, you can expect to realistically purchase one for about 5-20% below market value. A deal, perhaps, a steal, not usually. The really good ones often sell at or near market value.
There are a lot of risks involved as well. Unless you have experience buying and fixing up homes, most buyers don't know how to properly calculate the amount of money needed to properly improve a home. This often leads to the financial downfall of many, espcially first-time buyers.
Additionally, many buyers purchase a bank owned home without having their own agent. This comes from the "getting a deal" mentality that many buyers have. They mistakenly think that working directly with the listing agent will help get them an even better deal, which is not true. The listing agent works for the seller, not the buyer. Buying a bank owned home can be a much more complicated transaction than a tradtional purchase and without a buyers agent, a buyer is putting themselves at risk.
A bank owned home can provide a buyer with a fantastic opportunity to get the home of their dreams at a great price, provided they know what they are getting into. If you are seriously considering buying a bank owned home, consider the pros and cons to make sure it is the right thing for you.
Click below to read more articles about bank owned homes in the Cleveland area:
Bank Owned Homes In Orange School District
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About The Authors:
Dan and Amy Schuman are Solon OH residents. They specialize in Cleveland luxury homes, working with buyers relocating to Solon, and first-time buyers.
For Ohio and Cleveland OH real estate and homes see Cleveland real estate
For a personal consultation or to speak directly to The Schuman Team, call 216-346-3235.
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Cleveland Ohio Real Estate: Buying A Bank Owned Home - The Good, The Bad, and The Reality is the property of The Schuman Team and may not be duplicated or used without their written consent. ©May,2010
Great post about the pros and cons about buying bank owned homes. Foreclosures are unfortunate, but very common in our area too.
Thanks for the comments Brent. Many here are being bought up, especially in the high end suburbs.
Dan, I really like the pro/com approach...simple and straightforward and lets people know that it might not be smooth sailing when buying a owned home.
Great post and will reblog it.
Barb and Tim - Thank you for your comments. I think it is especially important for first time buyers to think long and hard before buying a bank owned home and Tim, I'd be interested to hear your take from a lending perspective.
HI DAN! I agree with Tim - it's a great re-blog post. From time to time, with clients who want to "try" to buy a bank-owned, I encourage them to bring along a contractor to get a clear idea of cost to fix up and repair. Thanks for the easy to read tips! -- Gabrielle
What a fantastic post and breakdown. This was one of the better posts I have seen in the past few days. Good job.
Dan and Amy,
Very good points and this post should be mandatory reading for buyers of bank owned properties. Good job!!
Gabrielle - Thank you as always for your comments. Your idea of bringing a contractor makes sense so they know what to expect regarding costs.
David - Thank you for reading and commenting. Hope you are enjoying your vacation.
Don - We greatly appreciate you reading and commenting as well. If buyers are educated about buying a bank owned home, it makes their life and ours a lot easier. Hope all is well.
dan
I have found that buyers get zoned in on the low price of the foreclosure, but don't factor in the cost of those repairs or upgrades. Often, they can buy a resale at a higher price for less than what they would put into the bank owned property. Sometimes, they underestimate the costs no matter how much advise they get from their agent or the contractor. Both side should be carefully considered. Great post!
Michele- We appreciate your comments. I see a lot of buyers begin their focus on bank owned homes only to realize they are better off buying a resale.