Are all REO or Foreclosed Properties Good Deals?
In today’s market and all local and national real estate market news that talk about so many existing and upcoming foreclosures and short sales are coming in the market nationwide, everybody is looking for a “Good Deal”. But, honestly most of the buyers don’t know what exactly they mean by “Good Deal”. Many think because of all news about numbers and low prices of foreclosures in some part of country such as California, Nevada, Michigan, Florida, they can get the same deal in other part of country, e.g., 20-50 cents for each dollar.
Nationwide foreclosed transactions accounted for 33%, 25% for years 2011 and 2012 respectively. This number is projected to be around 15% in year 2013 nationwide.
Both the number of projected of foreclosed properties and expected 20-50 Cents for a dollar for purchase price are not reasonable for most part of the country, especially in Collin County Texas for cities such as Plano, Frisco, Prosper, and surrounding areas, which have been identified as one of the healthiest real estate market in the nation. In many parts of these cities and surrounding areas, we don’t see that huge number of foreclosed or short sale properties and not only prices have not been dropped, some have been increased a lot in last couple of years.
Many buyers and investors in my area think foreclosures are ALL “Good Deals” and they can purchased them very cheap (e.g., 20-50 cents for each dollar or so), repair it (if necessarily), and they still be ahead about 40-50% of the purchasing of a regular sale!
This article tries to identify and inform the buyer of differences between when purchasing a foreclosed (REO) property and when purchasing a regular or non-foreclosed property. This hopefully provides enough information to a buyer to make a better and educated decision. Remember, it will require a patient and informed Buyer to have a transaction close successfully.
Now, let’s go back to our original question:
Are REO (Foreclosed) Properties “Good Deal”?
There is no absolute answer YES or NO for this question that can be hold true for all foreclosure transactions. Each foreclosure sale is different and requires a lot of details to be handled when buying a foreclosed (REO) property. One thing is for sure, not all foreclosure Properties are good deals nor are all bad deals.
Depending on many factors such as those shown below, purchasing an REO property may or may not turn out to be a “Good Deal”.
· Definition and expectation of a “Good Deal” for each Purchaser and
· Total purchase cost, and
· Additional costs (e.g., closing cost, repair cost, etc), and
· Condition of the property, and
· Repairs types/costs and
· Time takes to bring the property in a move-in condition and the
· Purchaser’s expectation & tolerance (e.g., expect 30% lower than a comparable regular sale, is he/she patient and willing to wait longer time to get responses back from the bank, is he/she informed and knows about all differences, etc),
· If you expect your home to be completely nice, clean, move-in ready, a foreclosure property may not be for you.
· If you expect to move-in quickly or get quick responses (e.g., within a couple of days), a foreclosure property may not be for you.
· If you expect the Seller to make major or cosmetic repairs before you move-in, a foreclosure property may not be for you.
Of course the purchaser’s expect to purchase that foreclosed property with such a good (low) price that he/she would be ahead of the game considering all additional costs, times, and inconveniences that he/she might incur.
Definitions: REO or Foreclosed Properties:
First, let’s define what exactly an REO or foreclosed property means:
When the property is not sold in the auction at the court step, as described in the article foreclosure Process, it goes back to the lender, and if that lender is a mortgage company/bank it becomes known as REO (Real Estate Owned - by the bank) property. Based on some historical data and observations, only about 3%-5% of all scheduled auctioned properties are sold to the audiences at the court step of the Counties (e.g., in Collin County of Texas). This means, more than 95% of those properties go back to their respective lenders or banks.
Please note that this article explains advantages and disadvantages of an REO Foreclosure (after the bank repossesses the property). For Foreclosure buying Process at the court steps in Texas, please visit http://www.TexasFiveStarRealty.com/Foreclosure_Conduct_of_Sale_in_Texas.asp
For the most up-to-date list of REOs foreclosure in North Texas please visit http://www.texasfivestarrealty.com/List_of_foreclosures.asp
DETAILS OF THE DIFFERENCES WHEN PURCHASING AN REO PROPERTY AND PURCHASING A REGULAR (NON-FORECLOSED) PROPERTY:
Disclaimer: Not all items specified here should negatively impact your decision to purchase an REO property nor applicable for all banks. However, it is a good idea that each purchaser go through this “differences” list and put a $ value for each item (if applicable), then add all those values to the purchase cost to come up with a comparable total cost and figure out whether or not that particular deal is “Good Deal” or not.
Each foreclosure sale is different and requires a lot of details to be handled when buying a foreclosed (REO) property. Consult with your real estate agent and/or your real estate attorney for questions regarding purchasing a foreclosed property.
In most parts, purchasing a foreclosed (REO) property and the process of offering, counter-offering and negotiations will be somehow different than regular (non-foreclosed) sales. There are many lender’s specific rules and requirements that require purchaser to follow.
Please note that following is a summary list of differences that I have collected during my years of experiences in real estate and I believe the REO purchasers must be aware of them. This list should be used as an educational and for informational purposes only and may not be complete.
Please note that below is a summary list of differences without explanation here due to the size. For more information and detail explanation of each item please visit http://www.texasfivestarrealty.com/Foreclosure_Things_You_Should_Know.asp
Due to the size of these explanations, they are defined in above web page.
For example; Banks may require:
1. Pre-approval or pre-qualification letter from a specific lender,
2. To use Bank's preferred Title company,
3. To use bank's own forms and addendums in addition to or replacement of the standard forms.
4. Property Tax Proration.
5. Prior Year’s Exemptions.
6. No Seller Disclosure Notice is required.
7. Property is usually sold “AS IS” Condition,
8. No Warranty, If Repairs done by Bank:
9. Additional expenses to Buyer due to fixing and repairing.
10. Loss of Time and Money During the time to make the house move-in ready.
11. Bank usually takes longer time than regular sale to respond.
12. Multi-Offer Situation,
13. To submit offers online through their websites,
14. No Option Period and No Unrestricted Rights,
15. Utilities may not be turned on.
16. Inspection Periods and Limitations.
17. Non-Negotiable exact pre-defined amount for earnest money.
18. Owner Occupancy Certificate may be required.
19. Special Warranty Deed Instead of General Warranty Deed
20. Limited Seller Closing Cost Contributions
21. Waivers of Buyers Rights
22. Seller's Sole Discretion
23. Non-Timely Negotiations Responses Back from Bank
24. Non-Guaranty Acceptance of Contract or Counter-Offer
25. Late Fee Charges and Choosing the Realistic Closing Date
There is no absolute answer YES or NO for this question that can be hold true for all foreclosure transactions. Each foreclosure sale is different and requires a lot of details to be handled when buying a foreclosed (REO) property. One thing is for sure, not all foreclosure properties are "Good Deals" nor are all "Bad Deals".
Depending on many factors such as those explained earlier, purchasing an REO property may or may not turn out to be a “Good Deal”.
Also, there are many other regular sale properties in the market that could be "Better Deal" than REO or foreclosed deals and should be considered in your search of "Good Deals".
There are many differences when purchasing an REO (foreclosed) property. Though, not all of them should negatively impact your decision, but you need to be informed and be aware of them. It will require a patient and informed Buyer to have a transaction close successfully.
If you expect your home to be completely nice, clean, move-in ready, a foreclosure property may not be for you.
If you expect to move-in quickly or get quick responses (e.g., within one or two days), a foreclosure property may not be for you.
If you expect the Seller to make major or cosmetic repairs before you move-in, a foreclosure property may not be for you.
- If you have time to wait a longer time and don’t mind to repair/fix problems yourself or deal with contractors to repair/fix problems for you to bring the foreclosed home to a move-in ready house and you have reasonable expectation such as 10%-15% below the market of comparable house, then a foreclosure property may be for you.
Each foreclosure sale is different and requires a lot of details to be handled when buying a foreclosed (REO) property. Consult with your real estate agent and/or your real estate attorney for questions regarding purchasing an REO or foreclosed property.
For more information on Foreclosure Process and purchasing foreclosed (REO) property, please visit http://www.TexasFiveStarRealty.com/Foreclosure_Process.asp
For a current list of foreclosed (REO) properties in North Texas, please visit http://www.TexasFiveStarRealty.com/List_of_Foreclosures.asp