Simply the answer is "Yes" and "No." In the last 18 months, the Phoenix metropolitan market has been literally flooded with foreclosure homes. To understand how to buy them, it is important to understand how we got here.
During the frenzy of house buying from late 2004 thru mid 2006, house values climbed not 5%, not 10%, but 47% in Phoenix! So if you or your neighbors bought a home during that time period, you are most likely upside down. Now consider this...most Phoenicians typically move every 2-5 yrs according to recent data. Also, if you were one of the lucky ones to stand in line and build a home during this time, there is a great chance that many of your neighbors are either upside down or have already gone into foreclosure.
As of this date, there are nearly 20k homes on the market marked as foreclosure in the Phoenix metropolitan market. That is alot of vacant homes for any area!
So we have alot of foreclosures and your friends tell you they are great buys? Yes they can be. At this time, most foreclosure homes listed on the market are priced at comparable sold properties in the area. So you are not getting the best deal on the block. Over 5-7 yrs you will make money on these. Bear in mind that if you can't borrow money from Aunt Gertie or Uncle Fred, paying cash for a foreclosure, you are going to buy it at a "fair market price" today.
Now if you can borrow cash from a relative or friend, there are many homes out there that are really need re-conditioning. These either are missing cabinets, have holes in the walls, missing water heaters or ACs. Typically these cannot be financed via conventional or FHA loans so if you are buying with cash, you can get a great deal. Of course, you either need to be handy or you need a know a handy man.
As far as buying a foreclosure, it is easy but different. YOU NEED A QUALIFIED REALTOR! You will make an offer on a home with a standard purchase contract. There will be a few differences though. (1) You will always get a counteroffer from the lister/lender limiting their liabilities and changing your contract. (2) Many times they want it sold in 30 or less days. Bear in mind that some FHA backed loans are taking 45 days to process. (3) Your REALTOR will submit an AS IS ADDENDUM. What that means is you are accepting the property AS IS. Once you complete your 7-10 day buyer inspection period, you have two choices-ACCEPT or REJECT. Unlike most purchases, the seller will not repair a broken window, replace roof tiles or cap a junction box. You are buying it as is. So be ready to work. (4) Generally the lister/lender will choose the title company. In Arizona, the buyer is entitled to choose his/her own title company. However, in cases like this where the seller insists on their own title/escrow, the seller has to pay the buyer's ALTA title insurance. So that is not too bad...you save a few hundred dollars. (4) There are possible pitfalls. Some situations are: your lender does not process the loan on time; you find out your new home buy has termites during the inspection period--guess what, that is your cost. Remember AS IS.
Overall foreclosures are a good buy. Be prepared to look at dozens of homes before you find one you like and is in good condition. Next, you almost have to have a REALTOR representing you and only you. Finally, make sure you have your lending under control. So often buyer's remember the easy days of financing and find themselves in a bind when getting financing.
