The word “foreclosure” brings images of broken windows, deferred maintenance and expensive repairs. While some bank-owned properties fit that description, dismissing them could mean overlooking a valuable opportunity. 

In Arizona, a foreclosure occurs when a homeowner defaults on their mortgage and the lender takes possession of the property. If the home doesn’t sell at a trustee’s sale, it becomes a Real Estate Owned property, meaning the bank takes ownership and is responsible for selling it. 

The biggest advantage of a foreclosure is the price. Banks want to move these properties as quickly as possible. That can create opportunities for investors looking to build equity or homeowners hoping to purchase a home below market value. In a competitive housing market, buying a foreclosure can provide access to neighborhoods that might be out of reach. 

But lower prices usually come with tradeoffs. 

A big difference between purchasing a foreclosure and buying a traditional home is the inspection process. While buyers should always obtain a professional inspection, bank-owned properties are typically sold as-is.  

Unlike a traditional seller, a bank is unlikely to make repairs, offer credits or renegotiate the price based on inspection findings. Instead, the inspection serves as a tool to help buyers understand the property’s condition and estimate future costs. 

Fresh paint, new flooring, fixtures and landscaping can be relatively inexpensive ways to add value. Other repairs are far more significant. Scenarios like a failing roof, outdated electrical system, plumbing issues, foundation problems or a worn-out HVAC unit can quickly increase the total investment. 

The challenge for buyers is they may not always have a complete picture. Utilities are sometimes disconnected, making it difficult to verify major systems are functioning.  

Additionally, part of the resale process includes receiving a “Seller Property Disclosure Statement” where the owner is required to list any problems with the house that they are aware of. A buyer should also receive a “Claims History Report” from the seller’s insurance company, stating whether or not any claims have been filed for things like fire damage or flooding. With foreclosures, banks don’t provide either of these documents. 

Still, bank-owned properties should not automatically be viewed as properties to avoid. The key is approaching the purchase with realistic expectations, due diligence and budgeting for potential surprises. For buyers willing to do their homework and budget for surprises, a foreclosure can be an opportunity to build equity and get ahead. 

Dayv Morgan is a Maricopa realtor and owner of HomeSmart Premier. 

This story was first published in the July issue of InMaricopa.