Pros and Cons of Buying Foreclosures in Santa Barbara, Carpinteria and Goleta CA.
As a home buyer in today's market here in Santa Barbara, Goleta and Carpinteria, you may be able to get "deals" on foreclosures, but buying foreclosures can be risky as well. If you are looking at foreclosures as an option for a home purchase, it is crucial to understand the many potential cons associated with the one obvious "pro" of buying a foreclosure.
First, there are a few definitions of properties that are generally thrown around and become universally known as "foreclosures." A "pre-foreclosure" for example is a home which is in danger of falling into foreclosure, but is still owned by the homeowner. An example is simply a homeowner that has stopped making payments and has received a notice of default. A true "foreclosure" is a property that has already been repossessed by a creditor or a lender to recover the amount owed on it and is being put on the open market. These foreclosures can be bought at either an auction or later on the open market as "bank-owned properties" (REO properties) from a lender.
The Obvious "Pro" of Buying a Foreclosure in Santa Barbara
The obvious potential to purchase a home at a lower-than-market-value price. DONE! That is that. Banks are often willing to offer foreclosures at a discount simply because the longer they hold onto these properties, the more it will cost them in terms of taxes, maintenance, etc. Here in the Santa Barbara area, foreclosures can be found at all price points (starter homes, luxury homes, etc.), but the vast majority are situated in the lower end price range from about $250,000 to $750,000.
Some of The Not So Obvious Cons to Buying a Foreclosure in Santa Barbara
- Since "good" foreclosures can sometimes be offered at significant discounts, you will almost undoubtedly face steep competition and bidding from other buyers. In a town such as Santa Barbara, often these buyers are all cash and are tough to beat. But this is not always the case.
- If you buy a foreclosed home at an auction, you may also find yourself in a situation that you have to pay cash (that day!) and may not be able to do proper inspections of the home before purchasing.
- Not all lenders offer loans for distressed properties.
- Many foreclosures need serious and costly repairs. This, I personally think is the most important aspect that needs to be understood. I think many buyers (especially first time home buyers) are truly unaware of the costs to repair and update a home that needs "work". I also believe that many uneducated real estate agents do not properly/can not properly inform their clients of these costs. Too often I hear Realtors and prospective buyers looking at general fixers and foreclosures that need a good amount of "work" and saying comments such as "But if you get this at $650,000, then all you need to do is throw in $50,000 to $60,000 and you are done." In reality this $50,000 to $60,000 is almost always $100,000 to $120,000, if not more, plus the added stress, plus carrying cost, plus enormous amounts of time etc.
- Foreclosures tend to sit vacant for periods of time and have been neglected which can lead to major maintenance issues.
- Sometimes foreclosure buyers themselves have to start eviction proceedings and pay legal fees to get the previous tenants/owners out of the home.
- Often foreclosures are bundled around other foreclosures and thus the neighborhood home values are very depressed and will take longer to rebuild.
I encourage anyone who has the interest in looking at foreclosures to do so. Just be educated and hopefully work with an agent that understands the realities of these properties as well as the true reality of costs to fix up homes that need "work".
For information on Real Estate here in Santa Barbara, Montecito and/or our surrounding areas, as well as any other aspects of life in our area, please don’t hesitate to contact Kevin Schmidtchen at Berkshire Hathaway.
Thank you for reading. I hope you find Santa Barbara Real Estate Voice informative. Please feel free to contact me or comment below with any thoughts.
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