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The Pros and Cons Of Buying A Bank Owned Home

by The Schuman Team

 

 

Many buyers hear about all the great deals that people are getting on foreclosed homes, and they want in on the action. The problem is that there are downsides to everything.

Before making a rash decision to go out and buy a bank owned home, you need to first consider the pros and cons:

 

PROS

1.    Getting A Home For Below Market Value - Who doesn't want a deal, right?

2.     Less Competition - A lower pool of buyers have the ability to finance and then put money into a home to fix it up. This could be a good opportunity for the right person, and especially critical as we head into a possible seller's market.

3.     Great Opportunity- A foreclosed home may be the only way for someone to afford a particular neighborhood or suburb.

4.     Return On Investment  - Buyers who buy a bank owned home and fix it up can end up with a large amount of immediate equity.

5.     Alternative To Building - Building a home takes time and is not always a feasible option for everyone. Buying a bank owned home and fixing it up to your specific tastes allows you to get the end product that you want, without the cumbersome process of building.

 

CONS

1.     Money - It takes money, sometimes a lot of it, to fix all needed repairs that are typical in a bank owned home.

2.     Risk - Foreclosed homes don't have property disclosures, so you don't know what you are getting.

3.     Neglect - Bank owned homes have been sitting vacant, sometimes for years. The lack of maintenance may lead to unanticipated problems down the road, some ending up to be costly.

4.     Time Is Money - Buying a bank owned home often requires a huge investment of your valuable time. It can be like having a second job.

5.     Financing - Some banks won't lend on a home if it is not in decent condition. This would require a buyer to pay cash, or get a specialized construction loan, which is not always feasible.

 

THE REALITY

The biggest problem we see is buyers jumping head first into buying a foreclosed home without giving it much thought. Many have heard success stories about people buying a bank owned home and assume they can easily do it too.

I have no doubt that a ton of people are successfully buying bank owned homes for 5%, 20%, or even 50% below market value. However, there are risks involved and they need to be considered.

Unless you have experience buying and fixing up homes, the process tends to catch most buyers off guard. They often fail to properly calculate the amount of money needed to improve the home, which can lead to their financial downfall. This is especially true for first-time buyers.

A bank owned home can be a fantastic opportunity to get the home of your dreams at a great price. You just need to consider the pros and cons to make sure it is the right thing for you.

How Low Can They Go?

by The Schuman Team

For the first time in a while, we are not talking about low home values. We are actually describing the number of homes currently for sale in the local Cleveland real estate market.

Take a look at the numbers below of current listings in some of the area's more popular suburbs:

CITY                                ACTIVE LISTINGS

Aurora                                        67

Beachwood                                  33

Bainbridge                                    65

Chagrin Falls                                 39

Hudson                                        95

Lakewood                                     91

Pepper Pike                                   47

Rocky River                                   76

Solon                                           97

Westlake                                      91

 

Can you imagine what it's like buying a home in Beachwood? There are only 33 homes for sale in the entire city, meaning there's only a handful in any given price point.

Low inventories have actually been a problem for a while now and will continue to present a challenge for anyone entering the real estate market this year.

 

CHALLENGES FOR BUYERS AND SELLERS

Here is what low inventories mean:

FOR BUYERS:

1.   Harder to find a home

2.   Increased Competition

3.   Higher Prices

4.   Less Negotiating Power

5.   Must Be More Flexible

FOR SELLERS:

1.   Easier To Sell

2.   Increased Confidence

3.   Higher Prices

4.   More Leverage

5.   Easier To Buy Another Home

TIPS FOR BUYERS AND SELLERS IN 2013

The most important thing to do if you are buying a home this year is to get pre-approved up front. Waiting until the last minute to get your financing in order may be too late. Limited inventory causes competition ( bidding wars! ) and without a firm pre-approval, you will be negotiating from a weakened position.

Hire a buyer's agent. A good agent will be aware of homes that are available but not yet on the market. Agents are very resourceful and can work their network to find homes for their buyers.

If you are selling this year, get your home on the market as soon as possible. Right now you have less competition and, if priced properly, could really benefit. Make sure your home shows well and is priced properly.

Low inventories bring a new dimension to our local real estate market. However, compared to the rough years we saw during the recession, this is a good problem to have.

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Contact Information

The Schuman Team
HOWARD HANNA REAL ESTATE SERVICES
3550 Lander Road
Pepper Pike OH 44122
Dan: 216-346-3235
Amy: 216-403-9189
Fax: 216-456-2333