Are Power of Sale Homes A Good Deal?
The short answer is sometimes! Here’s the long answer…
A property is listed under Power of Sale when the home owner has stopped making mortgage payments and the financial institution who holds the mortgage has taken over possession of the property due to the homeowner’s default on the mortgage payments. Once the mortgage holder has taken possession, they have the right to recover the outstanding mortgage amount, plus any expenses. This is usually accomplished by selling the property.
The mortgage holder has an obligation to get fair market value for the home, so usually they will have an appraisal conducted on the property. Additionally, they will have a REALTOR® assess what the market value of the property would be based on the condition of the home. Once the mortgage holder has both of these opinions, they will determine the list price for the property.
Sometimes it appears that homes listed under Power of Sale are listed at a lower price than other homes in the neighbourhood. This is probably the basis for the belief that Power of Sale homes are a good deal, but this is usually because of the condition of the home. Many homes that have been taken over under Power of Sale have suffered damage and if a homeowner has not been able to keep up with his mortgage payments, it stands to reason that they have not been doing any maintenance on the home.
People who believe that the mortgage holder only wants to recover the outstanding mortgage amount are not aware that the mortgage holder is also allowed to recover all costs associated with selling the property - the real estate commission, the lawyer fees, any property management fees that were incurred while the property was vacant, etc., etc., etc. All of these costs are recoverable by the mortgage holder.
Power of Sale listings that are in poor condition can be a good deal if the Buyer is willing to do the work to bring the home up to standard himself – but not always. These are also the homes that generate multiple offers and sometimes create bidding wars. It is always prudent to research what other homes in the neighbourhood have sold for and realistically estimate the cost of repairs to determine whether a Power of Sale home is a good deal or not.
More food for thought....Power of Sale homes come with no warranties. Buyers must do their own investigations as to the condition of the home (a home inspection) because with these homes it's "Buyer Beware". If there are problems (ie structural, mechanical, etc.) discovered after the Buyer has taken possession there is no legal recourse against the mortgage company.