Buying Foreclosed Property Carries Risk

By | May 29, 2012

(Source Rusty Garrett Times Record, Fort Smith, Ark. (MCT) — Sandy Pyles with Caldwell Banker First Booneville said investors who deal in foreclosure property can turn a significant profit, though there are risks.

Pyles said banks that find themselves left with unwanted property can lower the price on it, something the owner, required to make enough from a sale to pay off a loan on the property, cannot do.

Pyles said upon taking ownership, a bank can have a home reappraised. Given the current real estate market, a decline in value is likely. Thus, a house originally valued at $80,000 could be valued on today’s market at $65,000 and sold at the lower price.

If a house does not move soon at the new lower price, Pyles said, it is not unusual for a bank to lower the price again and keep lowering it until it sells. Banks don’t want to own real estate, she said. Their desire to unload the property can result in some savings for a buyer.

The risks, Pyles said, are related to the quality of the property. A home may be neglected or may have some serious structural problems. In some cases, an owner forced to abandon a property will leave it in terrible shape or even sabotage the structure.

The property is sold as is, a recognition that the buyer must foot the bill for any damage or defects.

Pyles also said that in some cases, the property fails to meet the standards required for property bought with some low-interest or second market loans. Conventional loans will likely be available, but at a higher interest rate and cost.

Much of the foreclosed property is being purchased for rehab and resale by investors, she said, though anyone interested in a “fixer-upper” may also find the listings attractive.

“There’s a lot more to come,” Pyles said of foreclosed homes. “Every county in the area has quite a few.” She said smaller towns tend to have high numbers of foreclosures. “Maybe it’s because of the jobs.”

RealtyTrac reports there were another 188,780 foreclosures in April. The month saw 81,931 foreclosed properties sold, with an average price of $176,148.


©2012 Times Record (Fort Smith, Ark.)

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Source Rusty Garrett Times Record, Fort Smith, Ark. (MCT)

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