3 Things that Make Buying a Foreclosure Different

The process of buying a foreclosure differs from the process of buying a traditional property listed by the seller. Here’s how.

Tom Monaghan
Tom Monaghan

If you’re a buyer looking for an affordable property option, you might want to consider shopping for foreclosure homes.

When buying a foreclosure, the process is different from buying a traditional home. Here’s an outline of what you should know before you decide on buying a foreclosure property.

Buying a Foreclosure: What is a Foreclosed Home?

A foreclosure property is a home that has been seized by the lender because the previous owner was not able to pay back their loan and defaulted on their mortgage.

When this happens, the lender takes ownership of the property and lists it on the market in an attempt to recoup the financial loss incurred by the owner backing out of their repayment contract.

This process of reclaiming ownership of the property is outlined in every mortgage contract under the terms for what happens if the borrower defaults on their commitment to pay off the borrowed amount.

Unlike traditional homes on the market, foreclosed homes are owned by lenders. This can be a bank or a mortgage company. In a traditional real estate transaction, the owner of the home is the previous homeowner who is selling the property themselves with assistance from a real estate agent.

Foreclosures can occur for many reasons, and often present an opportunity for buyers.

When buying a foreclosure, you will be negotiating with a financial institution, not an individual person. This is the main reason why buying a foreclosure is different from buying a traditional listing sold by a seller.

Banks and mortgage companies maintain different interests than the typical seller would, with the main focus being to sell the property as soon as possible to make up for their loss.

3 Ways of Buying a Foreclosure Home

Foreclosure properties are not listed on the same MLS platforms that traditionally are used to shop homes from sellers. There are multiple different ways to go about buying a foreclosure, such as a short sale, an auction, and directly from a lender.

Here is more information on each of these three processes:

Short Sale

A short sale is slightly different than a traditional foreclosure sale because, in a short sale, the homeowner is the one selling the home. However, the lender has a strong hand in overseeing the process and must approve the offer made by an interested buyer.

In a short sale, the homeowner has decided to sell a home for less than their remaining mortgage balance. The foreclosure process has officially occurred, so this is one of the ways that homeowners can avoid full foreclosure — which has a negative impact on credit scores.

Since you are waiting for the lender to approve your offer, this process can take a lot of time.

Auction

When buying a foreclosure at an auction, this means that the foreclosure has occurred and the home is owned by the lender.

This process is much quicker because, typically, auction houses only accept cash payments. There is no need for the lender to verify and approve your ability to purchase the house since the transaction is made upfront and in cash.

You should speak more thoroughly with you agent about the pros and cons of an auction.

However, buying a home at auction does give buyers the chance to purchase a home at a more affordable price. This is because auctions sell foreclosed homes for lower than the market average. But, foreclosed homes sold at auction are bought as-is. This means that buyers are incurring a risk as the property may need substantial renovations and repairs.

Directly from a Lender

The third way to go about buying a foreclosure is to purchase the property directly from a lender. To do so, you’ll need to have a certified real estate agent act as the middleman between you and the financial institution that owns the property.

Similar to the process of buying a foreclosure at an auction, these homes are usually sold as-is. The lender does not usually waste the time to negotiate terms or the money to invest in fixing up the property as they are most focused on making up for their financial loss.

However, this process does allow the buyer to view the property and have official inspections done before deciding to close on the home. This offers a more secure alternative to purchasing at an auction.

When Buying a Foreclosure, Work with the Right Real Estate Agent

If you plan on buying a foreclosure, the most important thing is that you’re working with a real estate agent who is experienced in assisting buyer clients transact with foreclosed properties.

The best first step in any transaction is finding the right agent for you.

You need a knowledgeable professional who is able to serve as your guide, walking you through the process and providing you with valuable advice, tips, and strategies.


To help you get in touch with a local real estate agent who has experience in purchasing foreclosed properties, search for your perfect agent on RealEstateAgents.com.

Tom Monaghan

Tom Monaghan