Buying a Foreclosure in California: Is It Really a Better Deal?

Buying a Foreclosure in California: Is It Really a Better Deal?

The word foreclosure immediately gets a buyer's attention.

After all, if a lender needs to sell a property, shouldn't you be able to buy it below market value?

Sometimes. But there is much more to the story.

Foreclosure Auction vs. Foreclosure on the MLS

One of the biggest misconceptions is that all foreclosures are purchased the same way.

A property purchased at a trustee's sale or foreclosure auction is very different from a bank-owned property subsequently marketed through the MLS.

At an auction, a buyer should not expect the usual negotiated protections of a conventional residential purchase. There may be limited ability to inspect the interior beforehand, financing works differently, and title and occupancy issues need careful investigation.

That's particularly important with older South Bay and Palos Verdes homes, where a seemingly attractive purchase price can look quite different after discovering major roof, foundation, plumbing or other repair needs $$$$$!

There May Be a Better Way to Find Value

Instead of concentrating exclusively on auctions, I like to broaden the search.

A buyer can look at bank-owned properties, pre-foreclosures and distressed sales—but also ordinary MLS properties that have been sitting on the market, experienced price reductions or simply need updating.

With an MLS purchase, depending upon the property and negotiated contract, a buyer may have the opportunity to conduct inspections, obtain financing and an appraisal, review title information and better understand the property before completing the purchase. California’s Department of Real Estate specifically emphasizes inspections, appraisal and disclosures as important parts of the conventional buying process. I, also, highly encourage my clients to do their due diligence during escrow, while they still have their contingencies.

The Question Isn't “Is It a Foreclosure?”

The better question is:

“Is this property a good value after considering the price, condition, financing, repairs and risk?”

A $100,000 discount isn't much of a bargain if the property unexpectedly needs $150,000 of work.

Conversely, an ordinary seller who has been on the market for several months may be willing to negotiate a price that creates an excellent opportunity—with considerably more information available to the buyer. Most recently, Palos Verdes homes have seen 41% of sellers lower their sales price (last 60 days ending 7/26).

That's why I would not limit a search just to properties carrying the word foreclosure or even pre-foreclosure.

Look for value.

If you're considering a foreclosure, REO, fixer or other opportunity in Palos Verdes or the South Bay, feel free to call me. I can help you evaluate the real estate side of the transaction and, when appropriate, introduce you to trusted lenders or other professionals who can assist with specialized financing, title, tax or legal questions.

This information is general in nature. Foreclosure, title, financing and legal issues vary by property and transaction.