How to Calculate a Reasonable Price to Pay for a Foreclosed Home

by Jagg Xaxx

Buying a foreclosed home is an affordable but somewhat risky option for people who are seeking low cost home ownership. Foreclosed homes have been repossessed by banks because of failure to pay the mortgage, or by municipal governments because of tax delinquency. These homes have sometimes been neglected, and are not subject to the same guarantees as homes that are bought on the traditional real estate market. Learning how foreclosure works, and setting a sensible budget before you go house shopping, can help you to stay out of financial trouble.

1. Investigate the neighborhood where the house is located. Location is just as important for foreclosed houses as it is for other houses. A run-down, crime-ridden neighborhood will depress the market value of any house.

2. Have the house inspected by a professional home inspector. He will investigate everything from the foundation to the roofing, and will alert you to any outstanding problems. He will either give you a rough estimate of what the house is worth, or counsel you not to buy it at all if it has severe problems. Avoiding a money pit is well worth the cost of hiring a home inspector.

3. Research local real estate records to find recent sales of comparable homes. Look for homes within a two or three mile radius of the one you're looking at, with comparable square footage, number of bedrooms, lot size and condition. This information will be your best guide as to what would be a fair price for the home you're looking at.

4. Talk to your banker about acquiring a mortgage. In addition to being a fair market value, the price of the home has to fit comfortably into your own budget. Consider taxes, insurance and renovation costs as well as the monthly mortgage.

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