Such a DEAL! . . . Maybe It Really Isn't

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Such a DEAL! . . . Maybe It Really Isn't

This blog was inspired by Charles Buell's The Perfect Storm

I started thinking about this, and realized how amazed I am that some short sales, but mainly foreclosures are coveted by Buyers.

Why?

Because Buyers think that a Foreclosure, mainly, is a great bargain. The lure of getting something for nothing, or a lot of house for a little buck.

Sometimes that's the case. Most times, it's not.

The main thing to consider when you are representing a Buyer, or are a Buyer, is condition. The condition of foreclosure property might be in dire straights -- a tear down -- or, it might need some sweat equity.

Rarely, and I mean rarely have the foreclosed homes I've toured been move-in ready.

If you're a Buyer, or representing a Buyer who is interested in Foreclosures, try to be realistic.

Do you have the funds to fix the place up?
Is the property going to fund?
Is the property going to be a money pit with unforeseen headaches (Netflix "The Money Pit")
Will the money you put in to it pencil out in the long-run?
Do you have the time and INCLINATION to make updates?
REPEAT: Do you have the FUNDS to fix the place up?

I toured a Foreclosure on Sunday. It had gone PENDING, but was back on the market. I took my clients out to see it. From the photos it looked fine. Upon closer inspection: the roof needed replacing, the garage door was dry rotted, the rain gutters were rusted (leaked), the flooring needed to be replaced, there were no appliances, and the siding (which the listing agent noted as "OTHER") might have been LP . . . the kiss of death in our local area.

This might have seemed like SUCH a DEAL on paper. It required a lot to make it move-in ready and that = MONEY!!

Looked GREAT in the photos! A lot do.

I hope the Buyers didn't waste spend money on a home inspection. Maybe what Charles is blogging about happened? And that would have been a shame! A good, experienced agent -- such as YOURS TRULY -- would have pointed out the issues, prior to writing an offer. Perhaps, saving the Buyers $300 to find out the OBVIOUS!!

Keep in mind, Foreclosures are sold "AS IS" in most cases. And "AS IS / WHERE IS" aka: What you SEE . . . IS what you get!"

And most Foreclosures are: YOYO (You're On Your Own!)

EBA Portland ~~ 100% BUYER REPRESENTATION ~~ 100% of the Time

EBA Portland, LLC is an Exclusive Buyer Agency serving the Metro Portland real estate market since 1999. If you’re a Buyer in the Metro Portland area (including: Beaverton, Tigard, Hillsboro, Lake Oswego, Downtown Portland,) and contemplating a purchase, talk with a Buyer’s Agent . . . better yet, talk to an Exclusive Buyers Agent. Exclusive Buyers Agents do not work for listing brokerages or Sellers. An EBA’s fiduciary duty is: 100% BUYER REPRESENTATION . . . 100% of the Time.

Carla Muss-Jacobs
503-810-7192
Carla@carlahomes.com

BuyersAgentPortland.com

Posted by Carla Muss-Jacobs - Exclusive Buyers Agent Portland | Portland Real Estate | on 01/28/2010 09:04 PM

Comments (53)

Foreclosures Aren't Always Such a DEAL! in the Home Buying Channel

buying a forecloser might not be such a deal

Originally posted at: Buyers Agent Portland - YOUR Exclusive Buyers Agent: Such a DEAL! . . . Maybe It Really Isn't

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53 Comments on Such a DEAL! . . . Maybe It Really Isn't

JAN

2010

I agree that the buyers looking just for foreclosures or short sales need to look at the big picture. Sometimes its the owner who has owned forever, doesnt have a mortgage, and need to cash out quickly will be the most likely to negotiate and will be selling a home that is in great condition cared for.

Hi Eileen . . . big pictures are good to look at ;-)

Carla, thanks for the link and I would add that with lots of these properties---along with the money----tons of "vision" is also sometimes necessary.

Carla~ I always tell the buyer, if they want to pursue a foreclosure, the home inspection is a must. Also, if the seller didn't have any money to pay the mortgage, they probably didn't have money to do the necessary repairs either.

Hi Carla from Washington! (Lord knows I hope no one but you knows to what I'm referring! LOL)

My partner and I just had a conversation about this very thing...everyone wants the deal of the century but, they don't know the pitfalls of those deals. If homeowners don't care enough about their HOME to pay their mortgage--and I'm not talking about those who are truly suffering from job loss, etc.)-then why does anyone expect that they're getting a home that's in excellent condition?!

Now for the ones that have suffered job losses and wound up in foreclosure--just as Dawn said, if they can't pay the mortgage, maintenance isn't going to be done either!

And don't even get me started on RealtyTrac...

:-)

So many are looking for that great deal and think a foreclosure is the perfect opportunity. Very few are in great condition. Most are are not.. Great information !

You are absolutely right! Every property has to be judged on its own merits.

JAN

2010

I took a buyer out to see short sales in an aging area today. All of them could use thousands or tens of thousands of dollars in repairs/updates.

Hi Charles . . . "vision" is a nice way of saying HOPE!! ;-)

Hey Dawn, yes ... a home inspection is absolutely necessary if the buyers want to pursue it further. Buyers should realize the banks (more than likely) will do nothing in the form of repairs called out on a home inspection.

Hi Debe -- my lunch date!! Yes, Dawn is right about the maintenance. Quite a few of the foreclosured properties I've seen have been rentals. They lived hard in those places. Thanks for the comments.

Hey Roland . . . some get disappointed when I show them what foreclosures and shorts look like.

Hi Mark -- job security!

Hey Vickie . . . I don't doubt that at all, unfortunately.

I think there are quite a number of people looking to "steal" a home and these foreclosures are supposed to be a freebie. Do they really think a bank is giving these things away???? Please!

Hi Carla,

I think that the misperceptions of the public regarding forclosures, et al, along with other issues like 'where do I go to find a home?' and 'where do I go to find an agent?' are the result of our failure as a profession to educate them.

If people understand that a sale is a sale and that MLS listings are the source of most of the real estate sales information endlessly duplicated online, they'll stand a much better chance of knowing where to go and what to do when the time comes. They'll also stand a much better chance of being in the right place to find a agent without a million middle-men in the way.

I like the YOYO part. I think that some of the best buys ow are the non foreclosure ,non short sale Sellers competing against the foreclosures.

Carla:

I am frequently amazed when a buyer looks at a foreclosure property and suggests that it if they buy it and put in $100,000 of work it will be the perfect home. I always make it a point to show them homes that are $50,000 to $100,000 more and are already the perfect home. There is much less risk involved if you know what you are dealing with from day one.

Carla, I went through this just yesterday and boy was it a long day! My buyers are first-timers and they assumed they could buy a foreclosure and fix it up with a little paint and some elbow grease. Unfortunately, the roof was SHOT and who knows what else? Not to mention, they barely qualified for the asking price and there was no room to escrow repair money. They decided to go with the move-in ready home I showed them two weeks ago. Very well said, I couldn't agree more!

Hi Carla-good points. I am finding 'real' sellers prices have come down in order to compete with the distressed sales, and those homes are much easier on the eye and the pocketbook!

Carla - As most of us know, there are very few foreclosures that are in move-in condition. Providing the buyer is aware of the risk and has the ability to do the repairs then these properties should not be excluded from their search. Everyone should proceed with caution with a distressed property!

I always love it when I hear - "I'd like to pick up a foreclosure". Buyers really don't understand that many times they just aren't the deals they think they are. The expression "If it looks like it's too good to be true, it usually is" really applies here. Not to mention how much time goes into trying to get to the settlement table and it nevers happens - there's hidden value in that too.

With all the unknowns that are involved with REOs, I seem to get the most risk-averse people who ask to see them. They learn quickly.

When things are down, cash is king. I like buying basket cases that have good bones. Most can't purchase it and fix it up. I end up with equity and a great investment.

There are very few deals on foreclosures. The buyer must understand that there are many insiders in the real estate business that will cherry pick the distressed properties.

Carla - I've had this conversation with buyers seeking financing. In the end I ask them this....If I were asking you for a home loan, would you lend me 200,000 if your money was backed up by this home? (I ask them politely of course!) They always say...No. And I say this will be the problem with the lender. They will do the same thing. I understand what you are trying to do in getting a "good deal" but even if a bank would fund the loan you are taking a huge risk for a moderate return. Listen to your agent, they deal with these things every day, year after year and know what they are talking about.

I couldn't agree more. I have shown buyers REO's and Short Sales that may initially look like half price, but by the time they get the property back to livable, the dollars spent would put the property over our current market values.

Jerry

So true, Carla. There is an occasional foreclosure "deal" out there, but most of the truly good deals I see are owner-occupied homes that are not subject to short sale.

Many great points. Love the YOYO acronym. They are mostly bargains for those who can add sweat equity.

Hi Carla . . . some people are obsessed with needing to get a good deal. It is almost a status thing. When in reality, if they just trusted their agent to find something right for them, they'd be a lot better off in the long run.

Carla...You are so right. There is a reason these homes are foreclosures and it is generally not because they are cream puffs. When it sounds to good to be true---it probably is. Thanks for sharing yours experience.

Cosmic Cow

Carla, this is a conversation I have had several times latley (scary we think alike?). We had one property in particular that was a nightmare but looks like such a great deal. The offer was withdrawn (not my client as I already had shown and talked 1 person out of buying just on the physical problems that were evident) after the buyer realized the stuff on the sheetrock on the ceiling was mold growing through the ceiling. The agent was from our office and they thankfully pulled out of the deal. They did however lose 2500 in earnest money. Not everything that is cheap or distressed is a good deal.

I like to show a few REOs & short sales first, especially to the inexperienced buyer with rose-colored glasses, then show re-sales in move in condition, to help them understand that even if it is just paint & countertops, there is an expense and most FTB do not have the cash to make the changes they desire.

Carla, sound advice. You get what you pay for and then, sometimes, some more!

Very good points. Foreclosures are becoming less and less "great deals" now, the problem is getting the general public to understand that.

Carla, while "hope" might have its uses in times of dire emergency----generally it amounts to "frosting on a turd":)

Hi Ruthmarie . . . yes, the banks have already 'penciled out' their loss, and they probably won't be very willing to do much else. As is . . . as they say!

Hey Andrew -- a little topic jumping ;0 I'll have to find the blog I wrote about the myriad of IDX sites. Good points!

Hi Cheryl . . . yup, sellers are competing.

Hey Claudette -- I've found that true as well. They are looking at a property they want to buy with 100% and then calculating the costs of re-hab. And it's just not the costs . . . it's SO TIME CONSUMING! Plus, is the home's value going to be able to recoup that investment??

Hi Kim . . . no truer words spoken, as they say! And I'm glad to read that your clients found a home they want!! Good for them!

Hey Lisa -- a lot easier (on both pocketbook and eye!)

I agree. By the time you get many of the foreclosure homes up to snuff, you might as well pay a little more for a home that has been taken care of.

It takes a while for this to become common knowledge though. Being a "foreclosure" has been a good thing as far as marketing a home. But I think soon, "foreclosure" might be a stigma and more buyers will start to shun them.

Awesome post Carla!! If only they had "widescreen eyes" to see the bigger picture!

The hardest thing to teach a home buyer is that the difference in the pricing of the usual foreclosure and regular home owner sale is condition.

So true! Yes, you sure need to be alert to the maintaince/condition of the "short sale home". Check out the comment above by Debe, it says it all.

Patricia/Seacoast NH

Girl, you hit the nail on the head! If it's priced under market - there's a reason!!!

Remember the old saying....."when it's too good to be true, it usually isn't!" Ha, I love this saying.

Patricia

We got a call this week from a buyer who said she only wants to look at short sales because she knows she can get them for a steal. Not really!

Most foreclosures in my area are not really a deal at all. Though they are priced below market value, it will cost a lot to make the property move in ready, so by the time that's all said and done, you could have bought a better home and spent less money in the long run.

Great post Carla, you're so right. When you sit down with the buyers and really help them crunch numbers they'll usually see that even though it appears they won with a great lowball price, it's not always a good deal.

Carla,

Great post, I've only once seen a foreclosure in great condition at an amazing price (and my buyers got it!) Normally, they are in such horrible condition that you can't wait to get back outside.

It's very tough to calculate the dollars, never mind the amount of time it will take to get these properties back in good condition. And you never know what you will find after you start.

Buyers really need to beware.

All the best, Michelle

Hi Judy . . . I don't exclude them, but the reality sets in with my clients after they've toured a few of them.

Hey Susan -- pick up a foreclosure, and then pick up applicances, paint, drywall, new flooring LOL!

Hi J. Philip . . . the 'risk adverse' buyers will appreciate the well-maintained properties, for sure!

Hey Joe -- I have an (inactive) contractors license. I used to do the same thing, back in the day. Now, the prices (in my local market) AND the cost of repairs prohibit me from rehabbing. It was fun (back in the day). It is not for the faint of heart.

Hi Glen . . . a GREAT POINT! The true deals are made on the courthouse steps. When they get too market, they have been cherry picked!

Hey Nevin -- thanks for the additional comments. Yup, most properties don't qualify. And with housing prices tanking in my area, the 203(k) loans can't even qualify the property. The equity just won't be there.

Hi Jerry . . . Most people don't realize how labor intensive a rehab can be. After a long 40 hour+ week, I don't even want to VACCUM . . . let along paint, ripe out carpet, install flooring . . .

Hey Dianne -- I see very few "good deals" and they typically receive multiple offers, so it's more of a bidding situation at that point. Bring you best and highest, in other words . . . and STILL the property needs a little TLC.

Hi Frank . . . yeah, that YOYO was creative. Did I make that up? I'm a genius, if I did ;-) The sweat equity can be there if it's in a "lender approved" condition. A lot I've seen aren't, sadly.

Hey Frank (II) -- a lot of potential clients don't like to hear me say foreclosures might not be worth their while . . . it's almost like a listing agent telling a seller the REALISTIC price of the home. They don't want to hear that either.

Hi Carra . . . Hmmmmmm . . . CREAM PUFFS!! Foreclosure are cream puffs that have gone stale. LOL

Hey Nick -- they lost $2,500 EM?? WOW -- that's a blog I'm ready to read. PLEASE blog!

Hi Jenna . . . I show foreclosures, and if the client has an interest, I run comps. Most times they won't comp out with the required repairs. It's just a tight, tight market. Sometimes they work out. Sometimes, it's better to buy a CREAM PUFF!

Hey Lyn -- thanks for the reblog! Cream Puffs AND donuts . . . I've gained 2 lbs from this blog post!

Hi Jennifer . . . true!! Beware beware.

LOL Charles -- never heard that one before. Frosting sure doesn't help.

Hey Tim . . . banks can take some of the bail out and/or bonus money and hire some local carpenters and make it HABITABLE at least!

Hi Andi -- thanks for the reblog! How's the morning going? The "birds eye view" of real estate. And speaking of squaking, how's those Parrots??

Will do, try to get to it this weekend.

Hi Lenn . . . this is where the "do the math" quote comes in handy ;-)

Hey Patricia -- Debe is good at saying it all!! You too! Sounds too good, etc., and so on.

Hi Karen . . . under market sinks the other property values too. In running comps foeclosures and short sales really screw skew it up!

Hey Karen -- she can get a deal, and maybe she can get a deal on paint, flooring, drywall (a lot of holes in foreclosures for some unkown reason ;0), shingles, nails . . .

Hi JL . . . seems to be a common thread, they aren't that good of a deal! You have to do the work yourself, or hire out. Contractors don't come free either.

Hey Bob -- thanks for the reblog! A good deal does "pencil out"

Hi Michelle . . . Congrats. Yeah, some of those deals get snapped up because they are few and far between. I'm glad you were successful!! Were there other offers?!? Just curious. Yeah, you never know what you find ... rehabbing is like exploratory surgery!

Hey Nick -- I'll check it out!!

LOL re the bird's eye view - hehe! This was a great blog and congrats on the feature!

Carla - Excellent blog for buyer's! The cost of appliances and repairs can add up quickly.

Yes, many buyers see foreclosures as having a big FREE sign on them, when they require so much work sometimes to make them habitable. HOwever if you have the money to put into it you do get near built in equity.

Hi Andi -- thanks again!

Hey Michelle . . . It does add up quickly.

Hi Amy -- money is a plus. What I'm seeing it if a buyer spends the money, it will be about the same as if they bought a turn-key property. I think the equity is a wash in this local market, for the moment.

Foreclosures may not only have a lot of repairs but also a lot of competition to purchase because many people want the "great deals."

Debe - Why would you have an issue with Realy Trac? LOL

One of the main attractions for some people is the belief that they can make money from some ones misfortune. It's basic human nature.

JAN

2010

Such good points! Everyone wants a foreclosure because of the price being so low but is it worth that $100,000 as you say? I totally agree but some just don't want to listen.

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Carla Muss-Jacobs - Exclusive Buyers Agent Portland | Portland Real Estate |

Portland, OR

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