Why are houses in Foreclosure so cheap?

Question

We are looking at a couple houses lately and I was just wondering why the sale prices on those in foreclosure are so low when the market price is through the roof???

Answer 1

Because the people who loaned money have defaulted on their loans.  Often, they have paid a lot of the mortgage before they were evicted.  At any rate, the bank does not want to own homes.  In order to get them off their hands, they are willing to take far less than fair market value.

Answer 2

Houses in foreclosure are being sold by the lenders, who've gotten stuck when them when the purchaser defaulted on the loan payments.

Some houses in foreclosure are cheap. Others aren't. It depends on what the lender wants to do. And that depends on everything from the lender's internal policies, to its cash flow, to the number of properties currently REO (real estate owned, meaning owned by the lender), its anticipation of market trends, and what the BPO (broker's price opinion--sort of like an appraisal by a real estate agent) was.

Suppose I showed you a house for $350,000. And suppose it sold in 2006 for $525,000. Is that a cheap price for the house? Not necessarily. I can show you plenty of houses in Northern Virginia (where I am) with that price history. Problem is, some of them, in today's market, are only worth $325,000. So $350,000 is overpriced.

Lenders often begin a listing price at the BPO figure. They've paid a real estate agent, usually a newbie, $25 or $50 for an estimate of the house's current value. The agent may or may not provide a realistic figure to the lender. (Usually, the agent's figure is too high.) So the lender starts there. Then, often on a pretty rigid schedule (like every 45 days), the lender drops the price by a set amount--like $5,000. And it keeps doing that until the houses sell.

So, before getting too interested in a foreclosure, have a Realtor do a CMA (competitive market analysis) to determine the house's true value.

And, as some of the other comments also noted, the market is not through the roof. In some areas, like the Midwest, it's relatively flat. In some areas, like parts of Florida and Las Vegas, it's down 30% or more. Close to where I live--in Prince William County, Virginia--prices are down 45% from last year. More like "through the floor" than "through the roof."

Hope that helps.

Answer 3

I have noooo idea.

Answer 4

market price through the roof?  where are you, that that occurs?

also,JULIE I -  its NOT the gov't selling the houses... its the mortgage companies, who want to cut their losses.  After all, some money is better than no money.

usually, the houses are in worse shape than homes not in foreclosure.

Answer 5

Market pricing

Answer 6

I'm not sure where you are getting these 'prices', but most foreclosure properties are sold for as much money as the lender can get.  If you are looking at Yahoo! Real Estate, RealtyTrac, or similar, be cautious.  Some of these sites aren't providing the ASKING price, but are advertising the amount of money on which the current owner is past due.

Hence, if you see what appears to be a $200,000 house for $10,000, don't expect to buy it for $10,000.  You will pay MUCH closer to the market value.

While there are reasonable deals to be had in purchasing foreclosed properties, you are simply NOT going to be able to purchase one for ten percent of market value.  NO ONE is that stupid when selling a property.

Answer 7

When a house forecloses, the government or bank takes possession of the house. This however ends up costing them money, because they aren't home owners or realtors. Don't worry the house is fine Im sure, just the bank doesn't want it, so they're selling it dirt cheap.  

Answer 8

When homes are foreclosed, banks just want what the people owed on the houses.  They aren't in the realestate business, they just want their money. If you're looking to buy one though, be sure to check into what the previous owner's buy back options are. Usually they can buy it back within a year.

Answer 9

Because the bank has siezed control of the house and basically just wants to sell it off as quickly as they can.  

Answer 10

because it will DRAW people in...NO ONE is looking to make any sort of profit on it they just want to get as close to the balance as possible! the banks dont want these houses!! so they need to go! sometiems they have been abandoned and need some or alot of work but the worse shape they are in, the lower the price. definitely look at some its a great idea now a days. check into it but eve nteh government is offering certain homebuyers like $8000 as long as they buy a foreclsure! GOOD LUCK!

Answer 11

Because it is the government selling the house and they want that money as soon as possible so they sell it for an amount they know will sell quickly.  

Answer 12

Well the foreclosure rates are very high....more properties on market creates lower prices b/c there are not enough buyers and the banks want to get out from underneath these homes...so lower values!

Answer 13

Banks are just interested in recouping what they are still owed - usually part of the selling price of the house is already paid off, so the bank's portion isn't the full selling price.  Banks also know that they can't always get their asking price quickly so they discount it more to get some money immediately.

Answer 14

Because the bank is just trying to recoup the loan amount....Balance

They are not trying to make profit..

You as a cunsumer can pick up all the equity that was paid in by the previous owner...

Another option is to by the house, and FLIP it..

That means in short buy it cheap....fix up any needed repairs...and sell the house for full market value..

I have been buying these homes for fractions of there value...

I have also come up with some great ways to help people from getting a foreclosure, and for me to still assume the equity...

There are millions of options out there...

Just research before you buy..

HAVE IT INSPECTED abosolutely sure you do this...Before you sign...

GOOD LUCK

....................................

Answer 15

Because the bank isn't looking for tons of money to buy a new house like regular people do when they sell a house. I guess they are just wanting to get the money the people never gave them. I think thats how it works! hope this helps!

Answer 16

To the bank, everyday that house sits they are not getting their money back, that they lent on it.

Answer 17

you did not volunteer where you are but Market prices are no

longer through the roof; they are down 25% in most places!

Answer 18

The mortgage industry recently got into some trouble when they loaned money to pretty much anyone who had a job with no accounting for whether or not they could actually afford the loan.

So, good news for buyers, homes that are foreclosed on are turned around and resold for loan value or lower. This is a great time to buy a foreclosure, you can pretty much name your price within reason.

Make sure you get a inspection done, they are not intitled to give you any history on the home.

Answer 19

i do not know

Answer 20

they've not been maintained.  and the bank just wants to recover the amount of the loan, they've no interest in getting the owner any of his equity back.

Answer 21

The banks have SO many houses that are just sittin around costing them money they want to get rid of them. Better to get a little of what the house is worth than nothing at all.

Answer 22

The market price of homes today are not "through the roof" any longer.

It is definitely a buyers market out there now.

Homes are not selling like they were a couple of years ago.

Many people can no longer pay their mortgages and are losing them.

Pick out a nice one for yourself and enjoy it!

Answer 23

because foreclosed homes are owned by the bank.  they are not looking to make a profit, they simply want their money back that was lent on the home to the previouse owners.  therefore, you are simply paying off the bank.loan from the last guy.