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If you listen to the talking heads in the media these days, you'd think there were foreclosures on every corner of every neighborhood, like gorgeous low hanging fruit in mid-summer. Let me set the record straight: Nothing could be farther from the truth.
I have been involved in easily a half dozen foreclosure transactions in as many months, and while there are many bank-owned properties out there, most of them are homes I wouldn't take if they were given to me, and I sure as rain wouldn't advise my clients to go after them. For myriad reasons, most properties are just plain too risky.
Things to consider when researching bank owned property:
Comparative market analysis. Is this really a good deal? How many foreclosures have there already been in that subdivision? How many more are likely? Got a crystal ball? What if you buy it for what you consider a good deal only to have foreclosures continue and you end up getting sucked into exactly the same thing that resulted in the property being a foreclosure in the first place? Does the house need so much work that you end up never realizing a "deal?" What are your intentions for this property? Looking for a home? How long will you be living there? Looking for a flip? Check your numbers twice!
So where are the good buys, you know, the ones you will be bragging about in five years at your back yard cook out?
They are in established neighborhoods. They are the atypical foreclosure in an otherwise stable neighborhood. Call it the freak foreclosure. And when you find it, get on it! But don't' expect to low ball and walk with the steal of a lifetime because you are going to be one of a handful of buyers whose agents are searching for the exact same thing.
And guess what else! Listing agents who understand the good foreclosure from the bad foreclosure will use the fact that banks typically ignore deadlines to hold off on responding to your offer until another offer comes in so they can instigate a bidding war. Think I'm kidding? This is happening more and more, and I don't think it's a coincidence. All interested parties are then asked to sign a document, stating they understand there are multiple offers, and they ask you to bring a new "best and final" offer. The bank also reserves the right to counter your best and final or just turn down all the offers and tell everyone to get the offers up. Talk about hard ball.
Make no mistake about it, though, these purchases typically represent some type of discount to the homes in the subdivision, but the home may be trashed or needing 5k to 10k in work, bringing you back up to the general tax assessed value. In the meantime, your discounted purchase will now count against the neighborhood because it will now be a comp used when appraising homes in that area. Are you getting this? Almost a be careful what you wish for type situation.
So are there any scenarios where foreclosures are a net to buyer good deal?
Absolutely. I closed on one three weeks ago (it took a month longer to close but it closed). My client paid in the 170's with 6500.00 toward closing for a home that was tax assessed in the 220's. All it needed was some paint inside, and a few minor repairs. BUT...when the buyer's appraisal came back during her financing process, it was valued in the high 180's. So, she got a deal, but not a screaming deal. Other homes on the market in that neighborhood are listed in the 210-220's but this is nothing for my client to celebrate. Those currently listed homes are not going to sell in that range, or nowhere near it, because my client just paid in the 170's for a home tax assessed in the 220's. The market is correcting. The county assessor has not yet caught up with the market, and the listing agents out there have to have very uncomfortable conversations with the sellers trying to sell their homes for the current but inaccurate tax assessed value. However, my client was looking for nice place to call home, and she is tickled, knowing the purchase exceeded her expectations, and that is what matters.
Take away message:
Not all foreclosures are the same. Hope for the best deal in the world, but prepare for getting a good deal at best. Know when you don't know, and hire someone who does. As a buyer, you don't pay a dime for experienced representation. There is so much more to tell about the foreclosure purchase process, but that is enough for now. JP
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