"The No. 1 reason to buy a foreclosure is the potential for a good bargain," says Daren Blomquist of RealtyTrac.com, which follows the U.S. foreclosure market. "Distressed properties have always come with a built-in discount, even before today's foreclosure crisis."
RealtyTrac figures show the average short sale fetched $192,129 in the second quarter. That's 20% less than the $241,715 for the average nondistressed home.
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Bank-owned properties, or homes that lenders have seized through foreclosure and have put up for sale, sold for even less. Such homes, also known as "real-estate-owned" properties (REOs), went for $145,211 on average during the second quarter — 40% below the average for all home sales.
"Foreclosures might not be for every buyer, but we believe they represent a great opportunity for many buyers," Blomquist says. Still, he recommends that would-be buyers tread carefully. Foreclosed homes typically are sold "as is," even though many fell into disrepair as their former owners struggled with money troubles. Some former homeowners also damage their homes on their way out the door. Other properties sit vacant for months or years, attracting vandals or falling further into decay.