I sometimes hear people getting excited when they see a place that’s being sold as a foreclosure. They are excited because they believe the place is going to be a really great deal for whoever buys it. This idea that has embedded itself in the public consciousness has presumably at least been encouraged by the recent mortgage debacle in the U.S.. Being so close by, Canada gets a lot of U.S. media and we sometimes forget that what goes on there is not the same as what goes on here. For example, these past few years, people here have tended to think that we had a major foreclosure problem and that prices were falling through the floor. (See my last post and others for more on this.)
In the system we use, and in these times, foreclosures typically sell at around the same price they would were they not a foreclosure. You may have some friend or an uncle or something who swears that they saved a bundle when they bought a foreclosure one time. This may very well be, as it does happen. But it usually doesn’t and it is also possible to get the same sort of deal on a conventionally sold house with far less risk.
The process of buying a foreclosure under B.C.’s system is long and uncertain. The offers need to be subject free by the time they finally go to the courtroom. This means you need to have already lined up all your investigation of the property, mortgage, home inspection and the like beforehand. And then in the courtroom you may be suddenly outbid. All that work, effort, waiting and money so that you will potentially (often) have to start your search over again.
Since the bank is the one you’re buying it from (who never lived there) just who are you going to sue if it turns out that there is a major problem that wasn’t visible or known to anyone involved in the transaction at the time of inspection? (For example, it floods in the winter or there is mould or rot inside the walls that was covered by fresh paint and since the inspector doesn’t have x-ray vision they couldn’t say whether there was something going on in there or not.) Foreclosure listings are “as is, where is”. Sometimes the previous owner will trash the home on the way out, take all the stuff inside and leave you with a shell that used to be the home you were looking at when you put the offer in. Unlike a conventional purchase, if what you got in the end doesn’t really resemble what you saw when you put an offer in… it’s still yours and there’s no last minute money back. Again, “as is, where is”.
There is one type of buyer who I think foreclosures are right for. The sort of buyer who already makes a living in real estate investment. They probably already own a couple of rental properties and make a significant portion of their income by fixing up, renting and maybe eventually selling properties when the market is right. They are the sort of buyer who knows what a place is really worth, what it will take to fix it up (as foreclosures are more often than not in poor condition) and above all are familiar enough with the real estate process to know what to expect and not be surprised or otherwise greatly excited by what does or doesn’t happen. These are people who are in a position to take a calculated risk based on years of knowledge and experience. Such an investor should have deep enough pockets to not be hurt if something doesn’t quite go as planned nor be surprised if there is a curve ball that they have to deal with.
So, if any of this is news to you and the risk of a property with a costly defect (with no one to sue over) outweighs potential benefits, I would say that foreclosures aren’t for you.
But here’s the golden tip: Divorces and deaths are where the real deals are most often found. Not always, but sometimes people are too upset to deal with the sale in a way the reaps the full financial benefits they could normally get. The caveat is that they can be time consuming and complicated as well, but are generally less so than foreclosures.
This is a sad topic, but human drama of all sorts is a situation that us Realtors work in daily. Part of our job is keeping a cool head while surrounded by grief, excitement, joy, fear, anger, or other emotional chaos so that our clients can get the best service possible whether they recognize it at the time or not. That’s my take on it anyway.