Foreclosures and Bank-Owned homes are a bargain, right? I have many clients ask me about foreclosures when they start their home search. They are initially interested in foreclosures simply because they are looking for a good value. I prefer to take more of a big-picture look at the market. If a buyer wants a good value, I'll help them find a good value. This may or may not be a foreclosure. Focusing solely on foreclosures would overlook the many fair & value priced homes on the market.
I'm happy to deal with bank owned properties. My current home was purchased from a bank after they foreclosed on the previous owner. But the fact that a home is bank owned doesn't make it a good value. Many bank homes are overvalued, and I see many of these homes sitting on the market for 1-2 years or more.
Reuters is reporting today that sales of Bank Owned (REO - Real Estate Owned) properties fell this past year over 31%. I'm not surprised. Buyers are savvy and know a good deal when they see one. If a bank (or any other homeowner for that matter) makes their property seem less desirable, due to overpricing or poor condition, it will have a slim chance of selling in this real estate market.
What can the banks do here?
1) Pricing - Homes need to be priced at fair market value. Pricing too high turns buyers away. Many banks instruct their agents to list homes at the price the former owner owed. With property values declining over 30% in many areas, this leads to homes priced far above current values. Pricing at obscenely low numbers and expecting a fair-market offer is another poor pricing strategy I see utilized by banks. This results in a flurry of very low offers that the bank would never accept. A waste of time for all involved. Banks, just like any other property owner, need to price their foreclosures right.
2) Condition & Staging - Homes need to be in prime condition or many buyers will keep looking. With lending standards tightening, a buyer would need a rehab loan to take care of many issues found in abandoned bank-owned foreclosures. Banks (like any other homeowner) should make the investments needed to get their properties sold. Often a $3k investment in needed repairs will turn a home into a sellable property. I don't see many banks making any repairs on their foreclosure inventory.
For more information, check out CT's Commercial Record's take on the situation.
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