Buying a foreclosure is often seen as a cheaper way to purchase a home or real estate, but it really depends on which phase of foreclosure the property is in. I have recently seen a property near me in pre-foreclosure, and the home’s price was on-par or higher priced than the market demands.

There are benefits and drawbacks to all of the foreclosure phases.

1. Pre-Foreclosure

When a home is in pre-foreclosure, it’s being sold by the current owner. The owner is trying to offload the home before it is taken by the lender, and the home is often sold at less-than market value.

Lenders will often accept less than the mortgage balance in this case.

A cheaper price is great for the buyer, but remember that the home is likely being sold as-is. You may be able to haggle the home’s price a little lower, but don’t expect much in the way of repairs or concessions.

Working with an agent that has experience in foreclosures is ideal.

2. Real-Estate Owned (REO)

An REO property is one that has been taken back by the lender, and it is lender-owned. Safe and simple, most people that purchase foreclosures prefer REO properties. Lenders that have chosen this route may not want to offer a discount on the property.

You'll also face higher levels of competition when bidding on the property.

Safe and secure, the biggest benefit of an REO property is that the seller is a lender, and the purchase is more secure. You will have negotiating power, and you can make requests for repairs to be made to the home before purchase.

3. Auctions

Auctions are often held by a trustee or the sheriff. When you purchase an auction, it will often be an exciting process where you’ll bid on a property that you can often secure for a much lower price than market value.

But auctions also pose a lot of risks for the buyer.

One is that you’re often not allowed to view the inside of the home. When you make your bid, you may be doing so blindly.

This means you may have a lot of repairs to make.

But there’s another issue: right of redemption.

“Under this law, the homeowner can reclaim the property within a certain amount of time if the person pays past due amounts and fees,” explains The Law Offices of Roger W. Stelk.

4. Government-Owned

When a property is government-owned, the purchasing process is slow. The government has less of an incentive to sell the property quickly, and this means that the government will wait for the right price before selling.

Fannie Mae and the FHA may help some buyers save money on the property, and these agencies can also help with financing.

Government-owned properties often have little wiggle room on price, so the buyer can be expected to pay asking price or near-asking price.

Foreclosure properties can provide a cost-effective way to purchase a home, but you need to fully understand the foreclosure process and work with an agent that has experience in the area.