No one likes to think about economic turmoil and the tragedy of people losing their homes. But one family's tragedy can be your family's gain if you choose to buy a home in foreclosure. There's no predetermined foreclosure discount amount, and not all foreclosures will save you money, but taking the risk of buying a home at auction can help you land some significant savings.
Foreclosed homes are, on average, about 28 percent less than other homes, ABC News reported in 2001. The average home cost during the same year was $160,000, which means a savings of about $45,000. Averages are just averages, though, so you shouldn't count on getting this specific number. You could luck out and save more, or you could end up paying close to the market rate.
Foreclosed homes often sell at auctions, which means you won't pay any more than the bid amount you offer. You'll be competing with other buyers, so the number of buyers and their willingness to dip into their pockets can affect how much you pay. If you're bound and determined to get a good deal, it's a wise idea to choose a relatively unpopular home or suburb. You might also try keeping your bids low and going to several auctions until you luck out and become the highest bidder.
When you buy a house in foreclosure, you can't count on the house being in good shape. There could be graffiti on the walls, a mess in the home or more serious structural issues such as a leaky roof. Touring the property before you place a bid can give you a rough idea of how much you'll need to spend, but you won't really know until you get a home inspection. If the house is in really bad shape, you could end up spending more than you save.
Making the Decision
Buying a foreclosed home is a risk, so you may want to hire a real estate agent who has experience with foreclosures. Don't spend all your money on the home purchase itself. Instead, try keeping the money you're saving on the house in a savings account so that you can quickly fix any problems the house has.
Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.