Buying Foreclosures: How to Avoid a Money Pit

Foreclosures can be good deals for homebuyers, but with 1.5 million of them on the market, shopping carefully is important to guard against walking into a money pit, where you end up paying more for the home do to repairs or other problems.

Here are some tips for anyone navigating the foreclosure market:

1.  Don’t pay too much.  You may think, “duh!” but with so many exuberant buyers, bidding up a property beyond its worth can be easy to do.  Don’t allow the thrill of competition sway you -decide on your maximum price point before the offer is even made.

2.  Get to know the banks (or have a real estate agent who does).  Practitioners who establish relationships with asset managers at banks can facilitate good communication.

3.  Factor in fix-up costs.  Most banks would rather sell a property as-is, meaning no repairs, no allowances, nothing. Buyers should consider what shouldering that responsibility will cost. Touring the properties with a contractor can be a good plan.

4. Bid smartly.  A good real estate agent should help the buyer get the inside track by gathering as much information as possible about other bids.

Source: CNNMoney.com, Les Christie (11/19/2009)