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Foreclosure Homes: Why are they Cheap?
By sharon | March 20, 2008
When the housing market started crashing, the number of foreclosure homes reached millions. Many buyer and investors tried to grab the investment opportunities that these foreclosed homes for sale offered. Aside from the large selection to choose from, buyers will enjoy quite a big amount in savings. If you are wondering why these homes are cheaper than existing homes, here are some of the reasons why sellers sell them at a fraction of their present market value.
Recover Losses
Since foreclosure homes were repossessed due to mortgage default, you can expect the lenders to suffer from not being able to collect. In order to recover some of the losses, these lenders will sell the home at a price that is close to the unpaid loan principal. It does not matter if the seller earns a profit. It is more important for them to recover the money they lent.
Minimize Holding Costs
If you are a seller and own a large inventory of foreclosed homes, chances are your holding costs will be over the top. These costs include fees for insurance and maintenance. The only way you can minimize holding costs is by selling these foreclosed properties at very low prices. This will certainly attract more buyers.
Reduce Inventory
If you want to reduce their inventory of foreclosed homes, most sellers will offer these foreclosed properties at low prices. With a smaller inventory, holding costs are lower and management of these homes will be simpler. A large inventory of foreclosed homes means that the seller owns non-performing assets, which can be bad for business.
It is not surprising that many sellers enter into listings contract to attract more buyers. Broker commissions are usually shouldered by the seller. But then again, earning a profit is not the priority.
Topics: Foreclosure Homes |