Check this out; you may be having the same experience right now; many of the buyers I am talking to are looking for a "foreclosure", because they want to "get a really great deal."   Well, I can understand the logic behind this thinking.   All of the recent talk about high foreclosure rates combined with a slow real estate market would lead you to believe that there are some great deals out there on foreclosed homes.  What's the scoop?

The bottom line is this - aggressive mortgage lending has really taken the wind out of the sails of foreclosure buyers.  Nearly every home that goes into foreclosure is mortgaged to the hilt and may in fact have loans that total more than the value of the property.  Let's face it folks, nobody that has a lot of equity in their home gets foreclosed on anymore.  If you have equity, then there's a lender somewhere that will loan you more money to get you out of trouble. 

So, when the bank gets a house back after a foreclosure it has already incurred thousands of dollars in legal fees and probably has to spend some money to make the house presentable for marketing.   There is not a lot of wiggle room on the sales price.  Yea, says this foreclosure buyer, but they have to get rid of that thing, so I can get a deal on it, right?  Not necessarily, you have to remember that the owner of the home is a gigantic bank with about a billion dollars in home loans on the books and they build in a reserve amount for expected losses on foreclosures.  The bank's balance sheet is so huge that the foreclosures are like a fly on their shoulder that goes unnoticed.  They are not generally willing to lose a significant amount of money on these things.  So if the equity in the property is zero or negative, then you may get lucky and be able to buy the house for a 5 - 15% discount to current market.  That's probably about as good as it gets and that's not a great deal!

There are really better opportunities that go overlooked.  One of these is estate sales.  When a person dies, the surviving heirs are generally very motivated to sell the house and put the estate to rest.  I have seen some of my clients get unbelievable deals from estate sales of homes. 

Another possibility is auctions.  Recently there have been a couple of well know builders that have been forced to auction off a block of new homes to avoid a financial disaster.  One of my own clients bought a home at auction in December for $195,000 that had been listed for sale in the mid 200's and we appraised the house for $245,000 with a very conservative appraisal.  This was also a builder model and he got all of the furnishings!!  We didn't even include that fact in the appraisal and the house probably had at least $25,000 in furnishings.  This was a great deal!

Finally, a homeowner who has owned their home for a long time, bought it cheap, has a ton of equity and is motivated to sell is going to be way more flexible on price than a bank trying to get their loan money back on a foreclosure.  Think about it - if you bought a house in 1985 for $125,000 and you only owe $75,000 on it now, and you sell it for $250,000 (even though you thought it was worth $300,000) you still doubled your money on this property.  The buyer got it for $50,000 less than it will sell for when the market picks back up again.   Look for sellers that have owned for a long time and have a lot of equity!  If they are motivated you may get that great deal!

The bottom line is, in today's world foreclosed homes don't necessarily make for bargains.  There are a number of other ways to find great deals out there if you put your thinking cap on, are patient, and know what to look for.  Happy Hunting!

Ken Mascia
Oxford Financial Corporation
Birmingham, Michigan
248-644-1200
www.oxfordfinancial.com