Buyers looking for an affordable home will often inquire into foreclosure homes in the hopes of finding a diamond in the rough. With the currently healthy real estate market buyers may have noticed a steep decline in the number of foreclosure properties up for sale. This is great news for homeowners and the economy but creates a challenging situation for those looking to buy property at a low price point.

Pam Harper with Century 21 Dean Gilbert Realtors is a longtime Fannie Mae foreclosure agent. She said the foreclosure market has shifted since the economy’s continued recovery from the Great Recession.

“At one time there were buyers looking for an affordable home,” Harper said. “Now buyers within this segment of the market are generally investors, depending on the price range of the home.”

Ronnie Cole with Virginia Cook Realtors explained homes in decent shape located in what is considered a good neighborhood will often create a bidding war.

“Most buyers that I’ve seen have been able to buy the homes for less than what the lenders list them for,” Cole said. “But if it’s a really good house in a nice neighborhood then it usually goes for more than list price. It just depends on where the house is and what kind of condition it’s in.”

When the bank or Fannie Mae goes to price a foreclosure property they first request a price opinion from a real estate agent. After that, they procure an appraisal to give them a value for the home. The lender also knows how much they have in the property. All of these factors go into the price and it is therefore unlikely to fluctuate drastically based on offers received.

Cole said buyers considering a foreclosure need to do their due diligence.

“They need to do their research on the house and the market,” Cole said. “They need to find out if there are liens … on the house or if the lender has taken care of that. If you buy one from the sheriff’s sale generally there are liens on them or back taxes the buyer is responsible to pay for those. It takes an education process to be able to buy one and make money off of it.”

Cole went on to explain how handymen have a leg up in the foreclosure market.

“You need to know what kind of numbers you are going to have to put in to fix it up,” Cole said. “The ones that come ahead are the ones who can do some of the work themselves. A thorough inspection of a house is always recommended whether you’re buying a new house or a foreclosure.”

Harper said foreclosure homes are typically in serious disrepair. She explained as owners fall behind in their payments they are less likely to keep up with the maintenance of the home.

Home equity conversion mortgages are adding a new aspect to the foreclosure market. These mortgages typically known as reverse mortgages are intended for older homeowners who may be on a fixed income and need extra money to fix up their homes.

“Instead of making a monthly payment, they receive a payment,” Harper said. “When I get those it is usually because they passed away and the family didn’t know that they had to sell the house to pay off the debt. So, they let it go back. These kinds of foreclosures usually sell the cheapest because the bank doesn’t tend to have a lot in them. Although there are exceptions.”