At the height of the housing bust, you could see stories every day about the huge discounts available on foreclosed houses. Foreclosures could be had at less than half the price of other homes, so buying anything else seemed foolish. That talk has calmed but there’s still the pervasive ideas that foreclosures are always a bargain. But it’s not necessarily so. Yes, foreclosures frequently sell for less than other homes.
But they aren’t like other homes. When people are in financial crisis, unable to make their mortgage payments, chances are good that they aren’t keeping up with basic maintenance. Why fix the roof when you’re going to lose the house anyway? In addition to issues of neglect, some homeowners facing foreclosure actually vandalize the home and take out copper piping, appliances and anything else they might be able to sell. Add to that the fact that banks don’t have the same disclosure obligations as traditional homeowners.
Of course, the impact of foreclosures on price varies from market to market. In some regions, the discount for buying a foreclosure is still steep. In others, it has all but disappeared. But instead of assuming you’ll get a better deal on a foreclosed home, make sure you are comparing prices between homes of similar size and similar condition.