Three Tips for Buying Foreclosures and Distressed Properties 

The foreclosure crisis has peaked, and now the nation, by and large, is in recovery mode. The nation’s foreclosure rate has dropped significantly since its 2010 peak, and is now at levels not seen since 2008 (and as early as 2006 in some parts of the country).

With that said, there are plenty of foreclosure homes available for purchase all throughout the country. These distressed properties abound, from suburban communities to big-city metro areas, and can be had with steep discounts off their fair market value.

The trick is to understand how buying foreclosures is different from buying a traditional, non-foreclosed home.

Here are three tips for buying foreclosures and getting a great deal for your investment.

Understand the ‘As-Is’ Nature of Foreclosures

When you go to buy a traditional home, you often base your decision on inspections. If there is anything that needs to be done to the home, either systemically, cosmetically, or structurally, you can negotiate for the homeowners to have that work done before you buy.

That isn’t the case with foreclosures. Most foreclosures are sold ‘as-is’, meaning whatever condition they are when you buy is the condition you get. This means that a bit of handiwork is usually required to make the home livable. This can range from simply replacing fixtures to serious electrical, plumbing, and carpentry work.

Understand that you’ll probably have to perform some repairs. Even with this factored into the price, though, you’ll still get a great deal when you buy.

Pay Attention to the Timeline

One thing that foreclosures and traditional homes have in common is this: the timeline matters.

In other words, how long a home has been on the market can play a big role in negotiating for a better price. This is especially true for foreclosures, since they may have already been to auction but didn’t sell. In this case, they are called real estate-owned (REO) homes.

REO homes can be had for even bigger discounts because they are doing nothing for the bank but languishing on their balance sheets as unperforming assets. You can typically get homes such as these for less than you would a normal foreclosure at a foreclosure auction. You just have to be willing to negotiate with the bank.

Cash Offers Increase Your Chances of Success

Finally, when buying foreclosures, cash offers greatly increase the chances of successfully buying a foreclosure.

In many foreclosure auctions, cash is the only way to go. And even if you can pay in other ways, a bank is more likely to sell to you if you can pay in cash than if you have to finance the purchase.

Understand the preferred payment options for a foreclosure auction before you go, and make sure you have all the proper documentation in order to successfully submit a bid. Also, talk with the bank to see what terms they prefer for their foreclosures, to ensure you can make a deal with them. They are largely willing to work with prospective buyers to reach a suitable accommodation.

Very informative post.

The tip of paying attention to the timeline plays a very important role and yes it will be a good option if we bargain for that property. Thanks for sharing this.

The thing with the timeline is that there are pros and cons to buying properties that are in each stage of the foreclosure process. Additionally, the process can be radically different during the process. The risks also vary as well.

When using a hard money lender, would that be considered offering using “cash” when negotiating with banks? Or would that still be considered financing?

Unless you have the money in your hand, all offers subject to receiving financing prior to closing is considered a financed deal. But, you can get around this by reducing the time needed for closing. This will make the offer viewed nearly like a cash offer.

Hi there… Its a useful information…Buying Foreclosures and Distressed Properties isn’t good choice but it can be a good options if you know about process of buying these properties.

Great Post!
Buying foreclosed home is a good option to people who are in budget because of its reasonable discounted price. :biggrin :biggrin

Hi campbellsimon,

These are some useful tips for buying a foreclosed property.

In my opinion, “Understand the ‘As-Is’ Nature of Foreclosures” is the key point that needs to be keep in mind while buying a foreclosure property.


learned a lot. thanks!

Great and valuable tips for buying foreclosed properties.
I think, must read for homeowners who are planning to buy foreclosure properties.

Very helpful. Thanks for sharing.

Thank you for sharing. Great info here. Foreclosures should start coming back around within the next few years.

Great article. Thanks for posting. @SPBuyersLLC I’m assuming this too. It will be unfortunate for those owners but us investors will be there to buy and repurpose those houses and bring the values back up. And some may even be able to sell to us before hand, avoiding that event.

We buy a couple of foreclosures every couple of months at the trustee sales here in Austin and Williamson County. The competition for them can come down to aggressive bidding on some of the properties. We keep to our guns on our top level prices that we will buy for a house.

I had approached a homeowner a couple of months ago about her property (appt of substitute trustee had been filed) she said she had it handled. Last month, I bought the property at the trustee sale. It was difficult to go back to her to let her know that I had bought it. Lucky for her, we are using it for a rental and she is now renting it from us. We are seeing more and more distressed properties in the area.

starting to see an increase in foreclosures in my area.

I have approached so many who have equity( sometimes it is a good amount) say they have it taken care of, and months later lose their home to foreclosure. It is a sad thing to see especially when they could have walked away with cash in their pocket.

4 Strategies to Buy Foreclosures:

  1. Approach homeowners in pre-foreclosure and make them an offer to buy.
  2. Purchase the property at the public auction.
  3. If no one bids on the property, it becomes bank owned. Purchase the property from the bank.
  4. Make an offer to purchase the property from the investor who bid and won at the auction.

Tips for buying the foreclosure:-

  1. Get pre-approved for a mortgage
  2. Know what you are getting in to
  3. Don’t assume they will just accept any offer
  4. Don’t limit yourself to foreclosures

Even though the original post is over 4 years old, the tips about foreclosures still hold true in 2018.