In seller’s markets where inventory is low and competition is high, many people opt to include distressed housing in their home searches. This could include foreclosure homes or homes in the pre-foreclosure phase. Here we’ll look at these two types of housing and things you need to consider before going this route.

A home in pre-foreclosure is one where the current owners have stopped their mortgage payments and have been notified by the lender that within a relatively short period of time, they must either sell the home to pay off the mortgage or get back on track with their monthly payments.

A foreclosed home is one in which the pre-foreclosure options have passed, and the lender (often a bank) takes possession of the home.

In both instances the advantage to the buyer is that the price will be below market value. Sellers –whether the actual owner or the lender (bank) – may be willing to make concessions, such as lower mortgage rates or money to help with repairs, which will help encourage a quick sale.

Investors often look to this part of the real estate market for houses they can buy at a deep discount, repair, and then sell for a quick profit – a process called “flipping.” But in competitive markets, traditional buyers are beginning to check out the foreclosure options as well.

Buying one of these homes is a bit more complicated and may come with higher risks. People in this situation – being forced out of a home – have less incentive to maintain the property in good condition and may cause damage before vacating the property.

Foreclosed homes – those already beyond the ability of the current owner to financially maintain – are frequently sold at auctions. This can be a more difficult setting for the typical homebuyer to find a bargain, since most auctions require full cash payment as financing is not allowed.

Foreclosed homes that don’t sell at auction – for lack of bidders or not reaching the minimum bid – will then be sold directly by the bank, often through a real estate agent. The good news here is that prices may still be negotiable though banks tend to want to get as close to the amount they loaned on the property as possible and the price will not be as low as at auction.

If you’re interested in adding distressed properties to your search, the first thing you want to do is find an experienced agent who can help you through the process. Give Metrowest a shout – we specialize in these kinds of sales and would love to work with you!