Foreclosures for PENNIES on the DOLLAR?

By
Real Estate Broker/Owner with Riverbend Realty, Cape Girardeau, MO 2004008944

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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.calculator

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 liz@lockhartlegacy.com (if you reblog, you must link back and leave copyright tag intact) Protected by Copyscape Originality Check

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If you are looking for a foreclosure in Cape Girardeau, Perry, N. Scott, or Bollinger counties, I am the region's most experienced REO agent. As the area's ONLY Fannie Mae direct listing agent, I list more foreclosure properties than any other agent in this MLS. I am among the few local agents approved to both list and sell HUD properties. Give me a call if you are looking for help with the purchase of a foreclosure property.

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http://www.homepath.com/  for Fannie Mae properties

http://www.homesteps.com/  for Freddie Mac properties

http://www.hudhomestore.com/ for HUD properties (foreclosures that were FHA financed)

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If you want up-to-the-minute real estate information, the only way to get it is to have an agent set you up on auto-notify with immediate delivery. Your listing information will come directly from MLS only when it comes from an MLS member. You willl not have to wait for the information to roll to those other websites, and you will not have to check multiple sources. It's free, so why not give me a chance to help you in your search?


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©2015 Liz Lockhart (if you reblog, link back and leave copyright tag intact) Protected by Copyscape Originality Check

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Rainmaker
507,409
Jerry Murphy, CRS, SRES
Long Realty West Valley - Anthem, AZ
Anthem, Phoenix, and Scottsdale AZ Real Estate

Thank you Liz.  Those late night infomercials do us no good.  I wish people would get of the "get rich quick" train.  It's what gets us into these messes all the time.  R.E.O. properties are usually great deals at the price they are listed.  Anyone who thinks otherwise doesn't know what they are doing or bought the snake oil they saw on T.V. or some conference.  Great post and best of luck to you.

May 19, 2010 12:42 PM #1
Rainmaker
303,859
Liz Lockhart
Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO
GRI, Cape Girardeau Real Estate

You are welcome, Jerry. Actually, dealing with the "late night dreamers" is not so much of a problem as it is an irritation. Though those offers do suck up valuable time, the dreamers usually only make one shot at the property. The real problem comes when  buyers legitimately WANT the property, but they lose the house because they waste valuable time low-balling offer after offer.

I have one right now where a well-qualified buyer made a 50% offer on a nice house that is already 100K below appraised value. The listed price just dropped to a "sweet spot" price, and someone else is going to swoop in and snap it up any day. The low-baller will lose it, I predict. And, on some level, I believe the buyer agent will share the blame. The buyer agent keeps calling and asking if her client is "in the game alone." I'm not answering that question.

 

 

May 21, 2010 03:56 AM #2
Rainmaker
303,859
Liz Lockhart
Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO
GRI, Cape Girardeau Real Estate

UPDATE: The lowball bidder I referred to in Comment 2 did, indeed, lose out in negotiation. I know that the buyer agent was counting on a call for Highest and Best to give her client a last-ditch chance to get serious, but the Highest and Best call never came. Instead, the asset manager just started responding to the offers with REJECT. When a reasonable offer came in from another buyer, there was no other offer on the table, because the asset manager had REJECTED the first buyer. No H&B was issued because the table was clean, and buyer 2 got the nod.

As I predicted, that "sweet spot" price brought in a buyer who didn't try to make it super sweet. He settled for a "sweet" deal.

Maybe the agent for buyer 1 did caution her client about the dangers of "lowball." If she did, I hope her client will now listen.

Jun 12, 2010 05:35 PM #3
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Rainmaker
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Liz Lockhart

GRI, Cape Girardeau Real Estate
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