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Risky foreclosures scare off homebuyers

Fewer Americans are willing to purchase a distressed home compared with six months ago, according to a new survey.

Now is not the time for Americans to start getting cold feet about buying foreclosures.

Not that their reasoning isn't 100% sound. Buying a foreclosure carries plenty of risks, and in some markets it will put you in competition with investors who are way out of your league.


But if foreclosure filings stay on track, more than 4 million U.S. households will have been at risk of foreclosure at some point this year, with many of those homes also set to hit the market in 2010 if they're not already on it.

Meanwhile, a survey by RealtyTrac and Trulia.com finds that Americans are growing increasingly uncomfortable with the idea of buying a foreclosure, with 43% of respondents indicating that they are somewhat likely to consider purchasing a foreclosed home, compared with 55% interviewed six months prior

Their biggest concerns? The hidden costs of buying a foreclosure (69%), the risks involved with the process (48%) and fears that the home will lose value (35%).

However, the survey doesn't dash all hopes for keeping foreclosure listings at a reasonable level.

Among the 23% of respondents who said they would consider buying a second home or investment property, 92% are at least somewhat likely to buy a foreclosed property.

"The most active and qualified buyers in today's market are highly interested in foreclosures, which is not surprising given the discount that often comes with a foreclosure purchase," said Rick Sharga, senior vice president of RealtyTrac.

The National Association of Realtors estimates that distressed homes generally sell at 15% to 20% below the sale price of traditional homes. However, the survey found that two out of three respondents expect a savings of at least 30%, with 43% of those in the Northeast even expecting a discount of up to 50%.


And it's not just investors who are showing an interest in foreclosures. Among those who are hoping to take advantage of the $6,500 move-up homebuyer tax credit, 88% said they would be at least somewhat likely to consider a foreclosed property. And more than half of renters (57%) also said they were at least somewhat likely to purchase a distressed home in the future.

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Comment by Namneet Dhaliwal on December 21, 2009 at 12:45pm
"The most active and qualified buyers in today's market are highly interested in foreclosures, which is not surprising given the discount that often comes with a foreclosure purchase," said Rick Sharga, senior vice president of RealtyTrac.

Kent, I agree with the above statement by Rick Sharga. In day-to-day real estate business, I see that big selling point is the word “REO”. I get client calls, who only want to buy REO, of course, they are looking for a deal. They want the discounts on the price for repair costs and holding cost and account for potential risk for the downward shift of the pricing with looming foreclosures, And many cases REOs come with some of those built in discounts.

Even though real estate market is still not out of the woods, given current interest rate and pricing, it is awesome opportunity for serious buyers.

Namneet Dhaliwal
Comment by MeLisa Minter on December 20, 2009 at 6:15pm
I can see how it's somewhat daunting for buyers to purchase foreclosed properties. Some of them may be great deals, but those are the ones that need the most work.

I have a foreclosed listing that needs an entire HVAC system and it may have some foundation issues. It has taking a while to move the property, but I finally found someone willing to take the risk.

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