Four stages or types of distressed properties get lumped under the term “foreclosures”: pre-foreclosures, short sales, foreclosures going to auction, and REOs (“real estate owned” sales). The further into the process a home gets, the more likely it is to be in bad condition. “Depending on the stage, there may be repairs that the seller neglected due to financial strain,” says Lane. “For a foreclosure, the owners may be gone, and the property may have been sitting vacant for a while. An REO is bank-owned, the furthest along in the process, and probably in the worst condition. It’s likely been sitting empty for months or sometimes years with little maintenance.” Imagine no electricity, vandalism, piles of abandoned stuff, and a wildly overgrown yard. Or a house that’s missing its appliances, fixtures, doors, and even copper pipes, all stripped out and sold. It can be pretty awful. And that’s only what you can see, Lane adds. “Homes in the auction or REO stage of foreclosure will not include a seller disclosure, which might have alerted you to additional problems that a typical inspection might not uncover.” 2. You might need to budget for more property taxes Let’s say you do buy a home that’s in bad shape, and you do fix it up. As you increase its value with all that fixing, your property tax bill will increase too. So you need to budget for taxes based on the likely value of the repaired home, not the distressed home you bought. 3. At auction, you could get caught in a bidding war One of the challenges of homebuying is to keep your emotions in check. That can be hard even under normal circumstances. Now add the pressure of a cash-only, “as is” foreclosure auction.
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