In the first half of 2023, a total of 130,000 properties initiated foreclosure procedures, representing a 15% increase compared to 2022 and a 30% increase compared to 2020.
One of the main attractions of buying foreclosed properties is the low prices. Banks often sell these properties at a discount to quickly move funds into other investments. Properties are typically sold at a 20%-30% discount compared to the median house price in the area. However, remember that foreclosures are sold at public auctions, so you may have to bid against other potential buyers.
If there is little demand for the property or if a home inspection reveals significant damage, you may have some bargaining power. Banks may reconsider their asking price and settle for much less.
Several government-backed financing options are available for purchasing foreclosed homes:
Foreclosed properties are often subject to damage and disrepair, as previous owners may not have had the funds for regular maintenance. Common issues include foundational cracks, leaks, and exterior damage.
As demand for foreclosed properties and the need for liquidity rise, banks and other lenders may try to accelerate property sales by offering hefty discounts for buyers willing to purchase the property immediately “as is”. However, this means you won’t get to inspect the property, and even a day’s delay could result in someone else purchasing it. Purchasing a property without a professional inspection is risky, although some daring investors may find good deals this way.
Depending on the state where the foreclosure process has been initiated, you may not have immediate access to the property even after purchase. Some foreclosed properties are sold occupied by previous owners or tenants, and the eviction process can take 2 to 12 weeks.
Demand for foreclosed properties has increased since 2021, following the approval of the Homeowner Assistance Fund (HAF) under the American Rescue Plan (ARP) Act. This act supported many homeowners facing foreclosure, reducing the number of foreclosed properties hitting the market. More foreclosed properties are expected to enter the market following the wind-down of HAF allocations.