Avoid These 6 Mistakes When Searching Foreclosures

Foreclosures can hold serious potential — especially for investors looking to fix-and-flip or rent out the property for a profit.

But searching through foreclosure listings isn’t like buying a traditional home. There’s a lot less info to go on, pictures are usually sparse, and you’re often dealing with pretty serious issues (both physically and legally) on the property.

Want to make sure you’re on the right track when evaluating foreclosed houses? Steer clear of these all-too-common mistakes:

1. Taking a foreclosure listing at face value.

A foreclosure listing is only going to give you a small glimpse at the property — and probably not a very good one at that. Evaluating a foreclosed home takes so much more than just a few photos and the square footage. You also need to dig into deeper details — things like lien and ownership history, property tax records, comparable sales, flood zone information, and more.

Think of a foreclosure listing as just a tiny window into a property’s potential. To really get the full picture, you need a whole lot more data on your side first.

2. Thinking a low price is enough to guarantee a profit.

No matter how low a property’s price is, you can never be sure of its future value — at least not until you’ve fully evaluated its condition, the local market, and what it will take to get the home up to speed. So while finding a super low-priced house can sound promising, it’s still not enough to lock in a good deal. You’ll still need to do your due diligence first.

3. Ignoring “as is,” “no inspection,” and “cash only” warnings.

All three of these terms are red flags when it comes to real estate — especially foreclosures. You never want to give up the right to an inspection (that’s the only way to truly evaluate a home’s condition), and as-is just means the property looks worse than you’d expect. Read listing descriptions carefully, and be wary of any terminology that seems suspicious.

4. Forgetting to check out the neighborhood.

Of course, you need to evaluate the property you’re considering, but you also need to dig into the homes surrounding it, too. What do comparable sales look like? Are home values climbing or falling? Is the area prone to crime, flooding, or other weather hazards? Comprehensive local property data can help you here, and you might also want to consult a local real estate agent to get a full handle on the neighborhood and its potential for future returns.

5. Skipping the record search.

A deep-dive into a property’s records is critical if you’re going to really evaluate the potential it presents. You need lien, tax, and ownership history, transaction and sales data, financing history, and more. This can give you an idea of what hurdles you may face if you go through with the purchase (as well as what they might cost you to overcome).

You also need to find out how long the home was vacant (if at all). A property that has sat vacant for an extended period of time will likely have more underlying problems to deal with.

6. Using the same tools and platforms as a traditional home search.

Zillow and Realtor.com are fine if you’re looking for a traditional property, but if you’re on the hunt for foreclosed homes or bank-owned houses, then you need a platform designed just for those types of properties. Foreclosure-specific platforms will give you access to more deep-dive details, and they’ll typically have more properties to search through as well. They also usually have listings for other bargain-priced homes, like REOs, auction homes, distressed properties, and more.

The bottom line

Buying foreclosed homes requires diligence. You need to be thorough, use the right tools, and exercise caution both when searching properties and evaluating them.

Are you ready to start searching foreclosure listings in your area? RealtyTrac can help.