Pros and Cons of Buying a Foreclosed Home in Los Angeles

If you’re in the market for a new home, perhaps you’ve browsed listings and come across a foreclosure or two that you like. Maybe you’ve even noticed that some of these homes have listing prices that are below the typical market value in your area.

Buying a foreclosed home in Los Angeles can be a great investment – but it also comes with its own set of risks and challenges. Here’s what you need to know if you’re thinking about purchasing a foreclosure.

What is a foreclosure?

First, it makes sense to understand exactly what a foreclosure is. A foreclosure is a property that has been repossessed by a lender because of nonpayment. These lenders, typically banks, then sell off the property to recoup their losses.

Pros of buying a foreclosure

One of the biggest reasons that homebuyers in Los Angeles purchase foreclosures is the potential to score a great home at a discounted price. Generally, banks are eager to get these properties off their books and are willing to let the home go for a price below comps in the area. Other potential advantages to buying a foreclosure include:

  • Potential to get a better house for the price – Since lenders often price foreclosures for a quick sale, buyers may be able to score a larger or nicer house than they otherwise would be able to afford. Foreclosures can be found at every price point, from starter homes to luxury mansions.
  • Upgrades can pay off big – If you’re willing to put some sweat equity into your foreclosure, the return you’ll see on the property’s value could be significant.

 

Cons of buying a foreclosure

While scoring a great house at a low price seems like enough motivation to buy a foreclosure, there are certainly some disadvantages you should consider. These include:

  • You may have to pay cash – Some foreclosures are sold at auction to the highest bidder. If you want to guarantee you win the bid, be prepared to pay all cash on the spot.
  • You may not get to inspect the house – Most foreclosures are sold as-is, meaning that the buyer absorbs any responsibility for repairs, liens or back payments on utilities. You may not have an opportunity to inspect the home before the purchase, so you will assume the risk for whatever you may find once you get inside.
  • You may not qualify for a loan – Some lenders have restrictions on distressed properties, making financing a foreclosure a challenge.
  • The property may need serious repair – If the home has been vacant for any period of time, serious issues could have occurred. It’s possible that the property has been vandalized or looted. The previous owner may not have kept up maintenance because of financial hardship. With the utilities shut off, pipes could have frozen, pests could have invaded and cracks may have formed in the walls and foundation.

 

Is a foreclosure right for you?

The pros and cons listed above are just some of the issues you should consider when buying a foreclosure in Los Angeles. If you’re serious about purchasing a distressed property, make sure to do your research and prepare for a closing process that can be more stressful and complex than a traditional sale.

Brought to you by Jerry & Rachel Hsieh

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About the Author

Pros and Cons of Buying a Foreclosed Home in Los Angeles

Jerry and Rachel Hsieh

In the past 13 years in real estate and at the age of 38, Jerry has had the good fortune of experiencing all of this at some point and has established himself as one of the premiere AWARD WINNING Realtors in the industry. Jerry began his career at Coldwell Banker with incredible heat: He was named the top “rookie” agent his inaugural year with over $4.5 million dollars listed and/or sold (Most 1st year agents don’t complete any transactions). Since then, his real estate career has been non-stop and he has quickly become the realtor that other young realtors talks about. In 2010, in a down market, Jerry and Rachel sold 24 homes within a 1 mile radius of the Pico/Fairfax area. They have sold over 50 homes in the Picfair Area in the past 4 years, more than any other realtor. From 2011 until now, Jerry and Rachel’s Team has grown, as has Jerry’s experience and expertise.