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"I only want to see foreclosures" - that strategy can backfire on you.

Foreclosures, short sales, private owned homes selling in Macomb County MI

                                            "I only want to see foreclosures"

I had an interesting conversation with a caller yesterday morning and thought I would share it with all of you. I'm hoping that by sharing it and putting it out to the public that other potential home buyers will see it, and understand the very real aspect of how this type of strategy can backfire on the home buying consumer.

For the past 3 years or so the Metro Detroit area has been swamped with foreclosed upon homes hitting our real estate market. ( This trend has somewhat trickled in the last few months, mainly due to the new 90 day "let's work it out" mandate from the Michigan government to home owners & lenders.)

Because of the supply (overabundance) and demand (waning demand due to economic conditions) the market not only tipped to the buyers advantage side, it fell completely over on it's side.

What happened to other home owners who wanted to sell their homes during all of this?   They had to price their homes competively in order to be successful at selling their homes.

In the last year I have not sold one bank owned (foreclosure) home. All of the homes that have sold to buyer clients have been homes that were owned by the sellers, and not in distress.   They sold because they were well maintained and more imporantly, were priced to sell with the competition of the foreclosures in mind.

Mr. or Ms. Macomb County MI home buyer:   If you "want to see only foreclosures" you will quite possibly missing out on some of the best deals there are out there right now.   Privately owned home owners are pricing their homes to compete with the foreclosures.

Consider this case on point:   Ms. Buyer purchased a condo in Chesterfield Township for $107,000 in June of this year. The condo sold new in 2003 for $187,000. It was in wonderful condition and needed nothing to be able to move in to it.    It was not a bank owned home. If she had limited herself to only viewing foreclosures she would have missed out on this fabulous condo at an unbelievable price.

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Posted by Kris Wales - Macomb County MI real estate blog & homes for sale search site on 09/09/2009 08:36 AM

Comments (41)

Foreclosures in Macomb County MI in the Home Buying Channel

buying a foreclosure in macomb county mi, privately owned homes selling in metro detroit michigan

Originally posted at: Macomb County MI real estate - 1st time home buyers info & advice: "I only want to see foreclosures" - that strategy can backfire on you.

This post has been included in Michigan Information Macomb County, MI Information

41 Comments on "I only want to see foreclosures" - that strategy can backfire on you.

SEP

I get that a lot too. REO homes can be a great deal, but they can also be in terrible shape, and a challenge to close. I would much rather sell a motivated "normal" seller's home any day. The buyer will be happier too since they will have less of a "project" home too.

Joe, I agree. I show lots of bank owned homes, but when the buyer can see that the neighbors well maintained home is priced the same, it's a no brainer for them. Much better condition normally and priced the same? Easy decision for the buyers to make.

Kris,

People watch TV and become experts.

It's like going to the store and ignoring the sales on new appliances because you only want to see the scratch-and-dents.

Hi Mike, Loved your analogy :-) You're absolutely right, instead of browsing the sale items and seeing them all, they'll be getting only the scratch & dents :-)

Wow, you have sold not one forclosure. That my friend is amazing.

I see "some" but very few homes in Washtenaw County where the sellers are able to price at forclosed prices.

Kris, You brought up something not only interesting but that I hadn't thought of. Prices are still very low and I'm hearing about price reductions so you're right in telling people to look at ALL the homes.

Buyers need to look at the finished cost of the home and compare there are so many great deals from traditional sellers they need to check them out great advice.

SEP

Missy, not one. I've shown lots of them, but my buyers are choosing privately owned homes. Here, the difference in pricing is maybe 10% more if any at all. Also, appraisals are tough on all homes because of the many distressed sales. Sellers have to price them near foreclosure pricing in order to sell and get the appraised amount. Sounds like your area is holding its own as far as private owner pricing so there is more of a price difference for your buyers to compare and decide.

Carole, The price reductions that sellers have to make in order to sell has made for some sweet deals for buyers of non-foreclosure homes. Thanks Carole.

Terry & Bonnie: Absolutely right. What will the home cost after they've put the money in it?

Great post, Kris. I've had similar experience with buyer prospects who only want to see foreclosures and short sales. More often than not, they see these "distressed" properties and turn their nose up when the property isn't in tip-top shape. Then, if they decide to make an offer, they make a ridiculously low offer, based on their "guesstimate" of what it will take to make the property into what they want. That's a deal waiting to fail, right there.

Also it seems like the "good" foreclosures are going quickly to cash investor buyers, with a very short time on market. The ones that are left are often stripped of appliances, light fixtures, flooring, HVAC systems, and sometimes worse. And yes, it's pretty tough to get that kind of home financed!

Eric, Buyers keep hearing (in the media) that you can pick up a foreclosure "cheap" and think that the banks will take 50 cents on the dollar for them. They won't. They're priced well already. Most here are receiving multiple offers at asking price or above asking price. I'm with you, making a ridiculously low offer only invites failure.

Penny, We're seeing the same thing. Investors are out there in full force with cash offers. Those beat out the financed offers darn near every time. We're not seeing as many stripped homes as we were 2 years ago, but occasionally we run into them. And you're right - good luck getting those financed unless you are doing an FHA 203K.

And don't forget the ones that are corporate-owned. A listing that is purchased by a relocation company from a transferring employee is usually serviced by an experienced agent who treats the listing the same way as others - staging, painting, and doing whatever else is necessary to make it shine and sell. These companies want their inventory sold as quickly as possible and you can get great deals. I had one listing that the relo company bought from the client at $1.1M. The actual buyer got it for $855K with $25K for closing. Sure, the relo company took a bath, but I think the bath is not so painful considering the part of their payment that comes from our referral fees.

Hi Kris,

No problem....when I get 'the call" for foreclosures I refer them to our foreclosure expert in town, and collect a nice referral fee. All for 5 minutes of my time....there are too many good to great buyers out there that want to see all the properties, and I think that not selling one foreclosure is a feather in your cap...I have not sold one either!

Dick Beals

I ask new prospects;

What can you afford?
Have you been to a lender?
Who is it? I need a copy of the pre-approval letter
Why do you want foreclosed property?
Can you fix anything yourself?

That starts our conversation off, to the pros and cons of buying a distressed property. Often times they are woefully misinformed. Even my husband bugs me find a "good one". Even my investors need to be reeducated about the CURRENT market and rule changes in financing

Valerie, We don't see that much of them here. In fact, I can't remember the last time I came across a relo listing. From what it sounds like though, your area has some real bargains with them! Congrats to the people that bought the one you spoke about.

Dick, That probably works well for you in your market. I don't mind it when my buyers choose them, it's perfectly fine by me. Here, we show them to all that want to see them. My buyers this year though are different compared to last year - they don't want the headaches and the private homes are priced so well that they can have a nicer house for almost the same price.

Sue, Love your checklist, especially the "Can you fix anything yourself?" Gets right to the heart of the matter quickly :-) And yes, even for investors the financing rules are changing drastically.

Not all foreclosures are bargains. Time and time again I have clients with the same mindset that they want a foreclosure home, they want a deal. it takes a great deal of patience and educating before they see the light that foreclosures are not always what they seem to be.

Mike... Spot on. People watched TV and became Carlton Sheets Real Estate with No Money Down experts, then flip and get rich experts, then they watched TV and became tax sales experts, now foreclosure experts.

As usual the sheeple confuse price and value. They are not the same.

Here in this part of Florida there are plenty of foreclosures, and few if any are in move in condition. When you take into account the cost of buying ALL appliances, including central AC units, water heaters, when you add in the cost of replacing carpet having numerous rooms of drywall repaired, lighting fixtures, etc. Plus the time it takes to get the foreclosure into move in condition. The foreclosure becomes comparably priced to short or regular sales.

I have found that here in Texas we have a good mix of homes on the market with a variety of sellers. The foreclosures have pulled the values down and foreclosures are harder to sell. Usually because of the condition a foreclosure requires a buyer with cash and come with all sorts of rules from the owner/banker. Sold "as is" etc...... If you have ever sold a foreclosure, you know what I'mn talking about. If you are in a foreclosure transation, you march to the beat of the seller's drum.

On the other hand, If you have the right buyer, foreclosure's are presenting opportunities for investors. One of my buyer's has an eye for the right buy and has been very successful. Keep in mind that the buyer I have pays cash and is not afraid of anything.

Thank you for your blog

Frances & Mark, "Not all foreclosures are bargains". That says it all, in a tidy 5 word fashion :-) Thanks!

Michael, For investors that can pay cash and have the crew behind them ready to rehab quickly & inexpensively, they can be good deals. But for the most part here we are seeing privately owned homes priced so well that it becomes a no brainer. Move right in or fix it up? Not even a toss up. It sounds like in your area that you have to replace so many mechanical systems that they'd better be priced soooooooooo low to make the effort (and money) worth it.

Ben, I absolutely agree that for an investor, and at the right price, it can be a good thing. We now are seeing a nice mix of foreclosures, short sale opportunities and well maintained privately owned homes. All of them are priced so well that for most buyers (owner occupying) they are choosing the well priced, nicely maintained private homes. In fact, I'd say the supply isn't keeping up with the demand for those. Your investor that you spoke of is smart - look for the "Right" one and jump all over it. Thanks Ben.

Kris-

It's pretty similar here in Oakland County. At least in the Orion/Oxford/Clarkston area, between 1/2 and 2/3 of the sales are either short sales or foreclosures. The other 1/3-1/2 are "regular" sales priced like the distressed sales. And are usually in much better condition. There's also the advantage of a regular seller supplying a seller's disclosure, past utility bills if requested, etc. I'm still selling my share of foreclosures but most of those are to investors. And short sales require a very patient buyer who has time to wait.

Great Post!

Kris

Great post...and very interesting. Here in Lake County Ca most sales are still REO's. I'm trying to remember my last deal that wasn't some type of distress sale. Most of the private owners in this area have been slow to adjust to this ever changing market.

I look forward to a return to "regular" sales..."regular" title/escrows...

I list and sell REO properties and I get calls all the time from buyers that want to see them because they think that those properties are "rock bottom deals". Unfortunately, they are usually priced with "market" and in competition with the rest of the inventory. Most people don't do the research to see that.

You hit the nail on the head. I think we can all get easily distracted with foreclosures---as if there's nothing else worth our time or money. Obviously there is a difference between discount buyers and smart buyers!

Yes there are some great properties in better condition here that are priced competitively with foreclosures. I usually send all of them in the price range that clients are looking at, just so they can compare.

Jackie, I started noticing the same thing in your area (Oakland County) as well as St. Clair County. In fact, yesterday I did a search for buyers in St. Clair County and there wasn't much, if any, difference in pricing in the REO'S and the private homeowners. Hope all is well with you!

Hank, Because our area (Metro Detroit) was hit first our home owners have had years to adjust to what is going on. Now they know that if they want to sell that pricing is key. Absolutely the key. I remember when the foreclosures were priced well under the other homes and we were selling almost all foreclosures, just like you. I have to tell you, I love the "regular" sales. Real sellers. Real disclosures. Keys at closing. It feels good.

Sandy, Just as private sellers don't want to "give away" their homes, neither do the banks. It is a common misconception isn't it? They are priced at market value already.

Mara, the media keeps shouting "buyers market - distressed homes!" and that is all that people hear sometimes. Or, "Uncle Joe got a great deal so I'll get one also." Buyers can lose out on the best deals on the market by limiting themselves. Thanks Mara.

Amy, I'm like you. I send all that meet the clients criteria and we'll look at all kinds: bank owned, short sales, privately owned. This year though not one buyer has chosen a foreclosure. It really is kind of nice that there are so many out there that don't need work and have sellers we can communicate with :-)

I'm not sure why a buyer wouldn't want to look at everything just to compare the two? Value with something taken care of and vs. something that is distressed. Maybe they really meant 'value priced?'

Bank Owned Homes is a good way to attract buyers. But really they need to look at anything in the budget that can close (I do avoid some short sales.)

Many of the REO's in my area have been going for above market value just because inventory is low. Most of the homes on the market right now are short sales. The only downfall to that is that agents seem to have given up on selling the listing if it's a short sale. That is my guess anyway since they don't return phone calls from other agents. I say if it meets the qualities you are looking for in a home, then check it out.

Yes I have had this also; but like it was said, many reo's are in bad shape, and priced sometimes around market value. Not always a great deal, seeing as some need lots of work.

Interesting blog Kris. I would almost always defer to my local expert (my Realtor)

Good post .... but not such good news for sellers. f

Point well taken, but only when the seller's realtor is realistic and is able to convey the correct 'value' to his/her client.

SEP

In an area with lots of foreclosures it only makes sense that seller of non-distressed properties would have to follow suit in their pricing. In Silver Lake, Echo Park, Los Feliz and surrounding areas we are still seeing multiple offers on almost all well-priced listings, REO or not!

Lyn, I asked that question because it seemed kind of odd, but no, the answer was "I only want to see foreclosures". They just cut out 50% of the available homes.

Gene, So far all of my buyers have cut short sales out of the mix, mainly because all of them have had some kind of time restraints and waiting 90+ days for an answer isn't an option. We may view them for comparisons sake, but no one has made an offer.

Amanda, You're right on. If a home meets their criteria, why not see it?

Ginger, Until a buyer looks at all the homes they really can't judge what is a "good deal" and what isn't. For the poor shape foreclosures, that good deal may turn out to be a money pit.

Mark, Many buyers feel as you do - defer to your local expert. Thanks Mark.

Connie, Things are turning around for sellers. People are viewing their homes now and making offers. Hopefully it won't be long until pricing goes up for them.

John J, We've been in this downturn for so long that it is rare now when an agent isn't realistic with their seller clients. I'm not seeing many overpriced homes now, and if they are, it isn't by much.

Jenny, That's great news for your area! Multiple offers on all homes is a good indicator of how your market is doing.

It is always refreshing to show a privately owned home after showing a few smelly foreclosure homes. This market is making some unique twists and turns.

Thanks for a good blog.

Mike Warfel

Bauer-Reno

I have always managed to open the buyers eyes when they first tell me that they only want to see foreclosures. Unfortunately, that is now what is mostly selling here, even when we look at everything.

SEP

Mike, You're welcome :-) It is refreshing.

Jirius, Sounds much like our area was a year ago. It's turning the other way now, thank goodness.

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