You have, no doubt, heard the claims on radio, on late-night TV, and maybe even at the coffee shop! Yes, it's true. You probably can buy a foreclosure for pennies on the dollar, but that may be 95 pennies on the dollar!
"But that cannot be, because everybody knows that foreclosures are such a good deal," you may say. The truth is that foreclosures usually are a good deal, but the "pennies on the dollar" myth is way overblown. Foreclosure properties are appraised before they are priced for the market, and they list at a somewhat discounted, but reasonable, price that is near the appraised value. I list/sell many foreclosed properties every year, and I have never had a new-on-market foreclosure sell for 50 cents on the dollar. Never. Period. End of sentence.
Do foreclosures sell for 50 cents on the dollar? Yes, they absolutely do; but that's 50 cents on the dollar when considering what the repaired value is or even what the previous price may have been, not the currently listed price. In other words, a home that sold for $200,000 two years ago may come on the market now for $100,000 as a foreclosure. The current price is based on the home's PRESENT market value in its PRESENT condition. In other words, you might be able to purchase that formerly $200,000 home for $100,000 now; but it does NOT mean that you can purchase the now-listed $100,000 house for $50,000. You are wasting your time, and your agent's time, if you offer 50% of the current list price. Always. Period. End of sentence.
Occasionally, a particular asset manager may need one more sale to meet a quota of some sort or a property may be slated to go to auction, and you may end up with a better-than-usual deal. Most often, though, foreclosure properties are going to sell for at least 80 percent of the currently-listed price; and it very often takes 95 percent of the currently-listed price. Of course, the scenario is different in deeply troubled markets.
When does a foreclosure become a serious bargain? Every foreclosure property, also known as REO (real estate owned), eeks its way down the price scale when it remains on market without selling. While it comes on market near the appraised value, it also gets regular price reductions. One fine day, it will hit the "sweet spot" price, and often more than one buyer will hop on the buying band wagon. The name of the game is Watch and Wait. At that point, be ready to make a qualified offer, and make it your best offer. If you think the current price is a great bargain, you are probably not alone in that opinion. In spite of your best efforts to be, you are probably not the only smart bandwagon driver! Others are watching that property, too, if it is as great as you believe it to be.
Don't quibble too much with a "sweet spot" price; because, when all the bidding is over, you may find that the property actually sold for more than that last listed price. I often fend off phone calls from angry would-be buyers (AND their agents) who cannot believe that their full-price offer for a property that they have been watching for months did not prevail. If it is a property you really want, don't wait until everybody else wants it, too. For maybe two thousand dollars more, you could have had it, and it would still have been a bargain. You've heard of buyer's remorse; well, would-be-buyer's remorse is sad, too.
So is there an "insider" trick? First, be aware that, in this market, there are lots of bargains that are not REOs. Having said that, though, the best tip I can give is that a serious REO buyer should get their financing in order (as should any serious buyer) and then seek out an agent who is experienced in REO sales. If you do not know how to find such an agent, just phone several agencies and ask for the names of agents who have participated in at least five REO sales in the last six months (that is actually a pretty low threshhold)--or read blogs and pick an agent who writes about the subject :-) . . .
If you happen to be in southeast Missouri, look me up--but not if you intend to only make 50% offers. . .
©2010 Liz Lockhart email@example.com (if you reblog, you must link back and leave copyright tag intact)