My Thoughts on Foreclosures...
As a person who sells real estate, I think its common to have potential clients who are investors in real estate. One of the first things these investor clients will ask for are of course, cheap property and the first reaction is to go to auctions and foreclosures. Are these types of properties really the best and least expensive way to go? Ive got a few thoughts.
How Foreclosures Happen
A foreclosure is a property that a bank has to take back to primarily to non payment. Sometimes people go through hardships such as losing their job, death of a spouse, or maybe the person just quit paying the note for one reason or another. The bank has to secure their asset so they have to start the process of foreclosure. This process can be expensive and take a long time involving attorneys and the court system.
The Banks and The Bidding War
Once these properties are ready to market, a specialized broker in foreclosures will assess the property, take the photos and create a brokers price opinion for the bank. The price will then be determined by taking the brokers' price opinion and knocking several thousand dollars off which makes it extremely appealing to those seeking a deal. If it's a hot property then you can expect several people to make an offer on it. The banks usually won't look at any investor offers at the beginning of the listing, they look for owner-occupants for the first 7 to 30 days depending on the bank.
As soon as investors can start bidding on these properties, the banks will never look at the offers one at a time like general real estate practice. They will set another date maybe after a week to look at all the offers, so they will tell you to make sure you put in your highest and best offer, and since there's multiple offers it's expected to be over asking price. How much over? The potential buyers will never know how much, and if they really want the property they might overpay for it which is what the banks are wanting. The objective is to create a huge surge of interest and get everyone competing against each other to make the highest bid.
Property Conditions
If you can imagine, the process of foreclosure means having the previous owners removed from the property whether they are willing to leave or not. Most of the time people don't want to leave the property, and won't take responsibility for not being able to pay their mortgage. They will get upset, blame the bank and destroy the property. I have seen properties with copper piping removed, doors removed, holes in the walls, amongst other super frivolous things people can do to feel better about having to vacate.
Is The Buyer Getting a Deal?
To have a client really like a property, and then trying to explain the " highest and best" situation, and trying to guide people what a good offer to make can be a challenge. It's preferred that the buyer not get emotionally invested, and make a logical decision about how much to offer based off local comparable listings. As long as the buyer is good with the offer and is willing to walk away if the offer isnt high enough, is ideal. Really, I try to find people good deals outside of auctions and foreclosures just because of all the competition there is to get these deals.
Other Options for Getting a Decent Deal in Real Estate
A savvy and well connected real estate agent or broker will know how to find deals through past or current clients. They can also determine what listings have been on the market for a long time, and could then try to negotiate a bargain for the buyer client. Sometimes, or a lot of times a seller will over price their property with the mindset of " ill take less". The "ill take less" method does not work anymore as buyers are becoming more savvy and less willing to look at over priced property, but thats a whole new conversation for another blog post. Find a connected agent in your community to find a good deal for you. There is less competition, and if you are patient you can often times find a better and less stressful option than seeking out foreclosed properties.
