I looked at my own dribble and found I had more to say about foreclosed homes, REO's, bank owned properties, etc. Earlier, I was telling Lauren B that pre-foreclosed houses at the county foreclosure auction really aren't something a fledgling investor or bargain hunter might want to jump into. I still stand by that advice. There are too many dangers and unknowns for the inexperienced, short-of-pocket buyer. However, what I didn't really talk about were the bank owned homes that have been assigned to a broker for listing in the local listing service. There are indeed more than just a few needles in the haystack; with a little research you can find a smokin' deal AND keep from getting burned or burned out in the process.
First, find an agent that can walk you through the analysis of a bank owned listing. You'll find the basics don't change. In fact, everything after this sentence will apply to nearly any purchase listed traditionally with a broker, bank owned or not. First and foremost is price, the main indicator of whether or not it's a good deal. Everything else in any analysis after that essentially will lead you back to price, namely (in no particular order, not limited to):
type of construction
type of ownership
floor plan / layout
time on the market
size (living space/lot size)
number of rooms/baths
bank name (owner of property)
amenities (on property, complex or neighborhood)
Seller (bank) concessions
number of drive by shootings per week
Just kidding, but not really. All buyers are as different as are the criteria in which they focus on to pick a home. Some attributes will matter while others will not. "So what are the specifics of why I should buy an REO?", you might ask. Again, one word - price. You might find some absolute pieces of junk out there and believe me, I've seen a few winners out there. But if a house comps out at 85%-95% of recent sales, (cool guy agent speak for "what is fair market value based on what comparable homes have sold for, recently?") then you might want to take a closer look. "Marvin, does that exist?" (Funny how writers talk to themselves...). Sure, in some regions of the country you might find better, others not. Remember, bank asset managers aren't dumb, they know what the property is worth because they just went through the foreclosure process. During pre-foreclosure and after foreclosing, the banks will ask a local broker for his opinion.
In San Diego while showing bank owned homes to a recent client, I've seen the whole gamut - homes priced equivalent to recent comps and sitting, while others are priced lower with multiple offers. I've seen water floating in a downstairs light fixture (from an upstairs bathroom, left running by Lord knows who) and I've seen granite, stainless steel kitchens with exotic tile and wood flooring, spectacular views, swimmin' pools, movie stars...I've seen it all owned by the bank. And guess what, they ALL will sell, given time. The banks really don't want to hold a non-performing asset. It just so happens that some homes, by buyer definition, are nicer than others.
"Marvin, you're not saying anything new...". You are so right. The only thing different in this market is who owns the house. And I'll bring it on home, guess what the banks care about (which is the same thing you should care about as a smart buyer)? PRICE. If it's overpriced, the bank can't unload it, take that money then lend it out again (oversimplified of course). With this thinking, most banks will price their homes a hair (a relative, oft used business term) below fair market value. If it's underpriced guess what you've got? A potential trampling death (or rather a retail, residential home sale in what many think is a bad market) by a frenzied herd of buyers and agents...
If you'd like to test my theoretical banter, let's run a scenario. I'm confident we'll find a few homes for your test. The San Diego inventory is so full of bank owned homes. There are deals out there, you just need to define it for yourself.
Well, go ahead, give it a test...