Foreclosures are ALWAYS a bargain!!!

Real Estate Agent with The HBH Group (Keller Williams affiliate)

 Yea, right!  I work a good bit with investors and most seem to think that foreclosures are a steal and you can rob the bank when you purchase them.  Well I would like to act as the Texas Mythbuster when it comes to foreclosure properties in the Austin area.  There are several reasons why foreclosures in this area are not as attractive as the general public believes and I would like to use this article and possibly a few more to dispel this myth.  Here are a few important points:

  1. Once a bank has foreclosed on a property, the real property becomes what is known in the banking world as an REO (real estate owned by a bank).  Banks have complete departments that work maintaining their inventory of properties and often these properties are purchased at the same cost as what the bank had loaned against the asset with other costs added on top when they calculate the value of that property. 
  2. I suspect that in many areas of the country the market is moving down so fast that banks are much more flexible on what they will sell these REO properties for, since they could be loosing value every day as the market values deflate.  This is NOT the case in Central Texas and the bankers know it.   They also know that we have many active RE investors here that are in the market buying properties now.
  3. The bank REO departments have very little maintenance costs associated with an REO property.  They turn off all the utilities, and really only have taxes and HOA dues to maintain each property, so costs to let them sit are almost nill.  Since the market here is fairly stable, holding a property for longer term is not a problem for a bank. When my job depends on how much money I make for the b, I am much less motivated to wheel and deal here than in other areas.  Further, there are usually several signature authorities that approve deals for the bank, making it harder to get all the parties within the bank to come to agreement when the deal is a money loser.
  4. Some of the toughest deals I have been involved in recently are bank deals because of these reasons.  Even when the banks are involved in negotiating a short sale, the motivations are just not there to reduce price to the point where it is attractive to most investors.  We see many properties here that end up in foreclosure because of bank inflexibility.  And before the properties go to auction, the banks buy them up at the mortgage amount and take them into REO inventory to wait out the process to get their whole investment sums back.
  5. I talk to brokers all over the country and they all tell me things are more loose where they are.  Banks are flexible; often willing to take a loss than to go into foreclosure and my team and I have just not seen that in this area.

For these reasons and more, I encourage my investors to get the properties from an individual BEFORE they go to a bank or even to a short sale.  The deals are better and more flexible.  Closing go smoother.  Everyone walks away happier.

If however you choose to shop for REO/Foreclosed properties in Central Texas, remember the following:

  1. Make sure you have the patience of Job - the wheels of bankdom grind VERY slowly!
  2. Expect that you will not get a steal of a deal!  There just are not many out there.  Invest for the long term to get appreciation which in this market is steady and solid.
  3. Remeber that many of the short sale and foreclosed properties here were taken with 100% finance situations in place, so the "deals" are even less in this sort of world, especially when the banks are looking for 100% recovery of their losses.
I would love to hear from others around the country with your experiences in working with the banks, HUD's, VA's etc.  Is this just a Central Texas issue or are things tough all over when dealing with financial organizations?

Thanks for reading!
Steve Homer
Broker-Associate, The HBH Group/Keller Williams Realty
Round Rock, TX

This information is brought to you as a public service of the The HBH Group Realty Team with Keller Williams Realty. You may learn more about us at our websites located at: and or contact our offices at (512) 439-3772 or toll-free at (877) 268-1877.


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Amanda Evans
DFW Living - Fort Worth, TX
Real Estate Broker - Fort Worth Texas

Same thing here in DFW, Steve.  I love it when investors call me and tell me they want to buy 20% below FMV, take care of paint and carpet and sell for above market value with 3 months.  My response:  Me, too! 

We have a lot of late night infomercial watchers out there it seems.

Apr 06, 2008 11:23 AM #1
Stanton Homes
Stanton Homes - New Home Builder - Raleigh, NC
Design/Build Custom Home Builder in North Carolina
It's not just Texas...  But sometimes it takes 6 months of looking for a steal of a deal before reality hits.
Apr 06, 2008 11:28 AM #2
Chip Jefferson
Gibbs Realty and Auction Company - Columbia, SC
pre forclosure is the deals
Apr 06, 2008 11:35 AM #3
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX
But even on the pre-foreclosures things get weird with the banks.  I had one last week that the bank had prestated a "price" and originally agreed that the price would include paying off a mechanic's lien and an HOA back-dues lien.  My buyer offered exactly what they were asking for and the bank came back and demanded that the buyer pay off the two second liens with cash on top of the "price".  Of course my buyer thumbed their nose at that, so guess who's going to foreclosure.  I am guessing that since the secondary liens will be wiped out by the foreclosure, they are using staff attorneys to do the paperwork and then they can put it back on the market at the same price without the liens.  Seems like an awful lot of work to save $6,000 in back liens.  Strange...????
Apr 06, 2008 12:03 PM #4
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX
Reflecting back on Laura's comment - the way to get pre-foreclosures is BEFORE the bank get involved.  Be there to help the floundering home owner before the bank has to do a short sale (if they are not upside down) and then you can usually work a deal that is good for all parties...
Apr 09, 2008 02:14 AM #5
Sandy Shores FL Realtor®, Melbourne Real Estate
M & M Realty of Brevard Inc. - Melbourne, FL
Brevard County Real Estate, Florida's Space Coast
It seems that every other call we receive today is a buyer looking to get a foreclosure.  In our local market they are still 25% or more overpriced, and often times with repairs needed.  For us, it will be a while before the banks get a bit more realistic-perhaps when they get enough of them on the books.
Apr 09, 2008 12:07 PM #6
Yeah, I guess foreclosures really ARE a bargain -- for the ones who have the money to buy a home that someone else cannot afford to keep.  Around 1995 the VA foreclosed on US after we assumed a VA loan just north of Houston (still in Harris County).  The previous owners had been living there paying the mortgage for, now I don't remember exactly how many years, before we took it over.  For at least a couple of years we BEGGED our mortgage company to help us out, but, of course, they just couldn't bring themselves to do that.  So VA foreclosed on our house and sold it FREE AND CLEAR for $8,050.00.  WE had assumed a $25,000 note and had paid on it for 11-1/2  years AFTER the previous owner had paid on it for a few years before that!  But, besides taking the payments we send them more often than we can afford, the VA is STILL taking any IRS refund/rebate we are supposed to get and applying it to the, I dunno, $5,000 we still owe on the house, TOO.  AND, when and if we get it all paid off, WE STILL DON'T GET A HOUSE!!!  So just don't think about the poor people who can no longer to have a home -- even a "cheap" one -- the VA doesn't!
Apr 16, 2008 03:44 PM #7
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX
Candy:  Thanks for the perspective from one who has been foreclosed on...  Sorry that situation happened to you.  I help as many people as I can avoid it, but we can't always save them from the bank's clutches...  Hope everything turns better for you in the future...
Apr 16, 2008 03:57 PM #8
Robert Machado
HomePointe Property Management, CRMC - Sacramento, CA
CPM MPM - Property Manager and Property Management
And the problem with auctions is the lack of disclosures.  Thanks for the information.
Apr 16, 2008 05:09 PM #9
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