There is a common assumption that there are many foreclosed properties for sale and not enough buyers. Numerically, that is absolutely true. There is still a lot of standing inventory, and more foreclosed homes come on the market every month.
What a bargain hunter needs to realize is that there may not be many houses available that are "perfect" for them.
All buyers want a good deal. They want the best schools, a nice yard, a house that is in good shape and move-in ready, modern appliances and a great neighborhood. What they fail to understand is that in most cases, a very basic rule of real estate applies:
An extremely desirable house will probably not suffer foreclosure!
A house that has great features and great amenities will sell via a conventional sale, and will usually not make it to the REO market. There is always a demand for good properties.
When purchasing an REO property, buyers need to understand that a lot of these properties are far from perfect and that they should expect to make some compromises. The quality of the inventory is obviously not going to be the same as the general market. It's just common sense.
In addition, foreclosures are actually a small subset of the overall market. In Coweta County, roughly 10% of the total listings are foreclosures, with over half of those being low-end investor properties that need significant rehabilitation.
And the best REO properties are selling for significantly higher than list price. Remember, even in the world of foreclosures the laws of supply and demand prevail, and the demand for quality REO properties is extremely high!
Finally, to get the best deal, buyers should be prepared to broaden their specifications and be prepared to move quickly when an adequate property becomes available.
After all, these deals won't last forever!
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All content, including text, original art, photographs and images, is the exclusive property of Coweta Fayette Real Estate, Inc., and may not be used without the expressed written permission of Coweta Fayette Real Estate Better Homes and Gardens Metro Brokers, Newnan Georgia. All information is believed to be accurate but is not warranted, Copyright 2003-2009. Richard Weisser REOS, E-Pro. licensed Auctioneer. 770-827-6225.
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You are absolutely right Richard. It is hard to take buyers to see some foreclosures after they think they are going to find a wonderful house and find a dump. It is a valuable lesson for them and helps them to broaden the search scope.
Paddy...
Quality and price will always go hand in hand. It's the power of market forces at work! Thanks for being the first to comment!
Richard, There are some buyers who are "obsessed" with getting a foreclosed home. Of course, they also want it for 50 cents on the dollar.
I read recently that the top 26 cities for foreclosures come from only 4 States. Around here foreclosure concentrations are only in some counties. Rich
Richard,
Thanks for your blog and the information. Buying a foreclosure has become the thing to do in my area, but usually the buyer changes their mind when they actually see the foreclosed homes compared to others on the market.
Richard, buyer's shouldn't be surprised if they are looking for a cheap home that is what they will see, Cheaply built, cheaply maintained, cheap neighborhood, the right location, custom designed,and great features are sold prior to bank intervention.
That steal of a deal you bought years ago is often the worst lot in the subdivision. Now it is a foreclosure. Some folks just buy price, and pay for it in the end....
If the buyers don't freak out when they see the property, they usually panic when the see the REO contract addendum!
You are so right!
Those best suited for foreclosures are usually those with an investor mind. That is, they understand that they often get what they pay for=. Not only do you make your money when negotiating, but after you own it and how you care for it. I have no problem with investors flipping properties, that is, when they know the nooks and crannies of doing it. The general public thinks they can have an investor mentality and skill-set overnight, and they want things for pennies on the dollar with little time or effort invested. People have to realize profiting from foreclosures is a business, not shooting fish in a barrel.
Richard it is about supply and demand and correct value pricing. You can't steal in slow motion and the good deals don't remain long. It is the nature of the market.
Hi Richard: Unfortunately, most of the foreclosures I've seen recently have looked very much like the one in your photo. Buyers love the pricing but hate the long list of repairs with which they have to deal.
Richard - I knew a homeowner once who let their home go to foreclosure because the unconventional construction had created a roof that would NOT quit leaking. They got tired of pouring money into a problem that would not go away, so refinanced to the max, then let it go. Subsequent buyers have also not been able to deal with it.
You never know what you will get in a foreclosure. And let the buyer beware. (Although I have also sold REO's where the former owner even shampooed the carpet when they left).
Rich...
Most foreclosures are priced appropriately, and "killer" deals do occur, but they are rare. THX
Jake...
And many have that foreclosure "smell" to them that makes showing them very unpleasant.
Steve...
Exactly, very well stated. Thanks for the comment!
Richard - I have found that some perfect, or almost perfect homes, hit the REO or foreclosure market. But they don't last long at all, and end up with multiple offers. The one you have pictured is in better shape than many of the listings around here.
I think that people have simply heard the word foreclosure so much that they have it drilled into their psyche that the only way to get a good deal on a property is if it's bank owned.
Ah the perfect house. Sure there out there??!!! Surely the house you are currently in was perfect when you moved in there?
Shelton
It is really humorous regarding the perceptions about foreclosures. You hit it right on target, usually the condition is a factor. The good deal is buying one that needs cosmetics and for a proper price. Elevate it to a nice level and enjoy the fruits of your labor. Nice post to remind of decisions and facts.
Having shown an increasing number of REO's, most have some form of cancer. There are exceptions but they go quickly. Focusing on forclosures as your primary residence generally ends in disapointment. With housing prices at a low, the focus of my buyers moves back to the basics as you described in your post.
What buyers need to realize is that there are very few homes that will fit their needs. Not that they shouldn't shop around, but they need to realize when a deal is good.
Richard: With all the losses the banks are suffering, it still gets me when buyers thinks the banks don't want, or need, market value. It's absurb. All sellers want market value. The difference is always condition.
A week doesn't go by with my needing to explain the advantages to a buyer, of buying a correctly priced home from a homeowner, versus a foreclosure.
These buyers think that the word foreclosure is another word for good deal. Not True!
Richard, very well said. It is hard to get some to understand that, and hard to get them to understand that the first home may not be as bad as some of the foreclosures, but that they may need work. You get what you pay for, and sometimes you have to pay in sweat.
Richard I hear all the time from buyers they want a foreclosed home because they know it's a good deal. What a misconception they have.
I'm always telling buyers that a foreclosure is not always the best deal...and you've got to have tough skin to make it through the deal. Weeks to get answers is not a game for those that are ready to move NOW!
Great post!
Boy did you hit the nail over the head!! Especially with our numbers here in Coweta County!! I strongly counsel my buyers that bidding on HUD owned properties in Coweta County has changed significantly over the past six months and the bargains that we saw six months ago are a thing of the past now.
Great Post!
Richard, I've been gone so long I almost forgot about you!!! And then you pop up in email! Well, here is something I really know. You are correct!!!!! Most of the time in Minnesota, good property will sell prior to foreclosure. But we have had some amazing property go out to the banks. I hate to say that out loud. I really do not want to encourage buyers to look for that one diamond in a sea of silt. And, just looking at foreclosures when you want to purchase is a sure bet for disappointment and a long list of to-dos. But, it can and should be done by someone. If you are up for elbow grease and a bucket of money, go for it, but only if you know what you are getting into. Advice from a realtor selling bank-owneds...word to the wise.
Even in Michigan it is true I just wrote an offer on a forclosure and it has 3 other offers on it. Listed 3 days ago.
Many buyers want Foreclosures because they expect to get the best deals. However, foreclosures, on average, are lasting less than a month on the market and many are selling over listing price with multiple offers.
Great post to try to reach these buyers who that is all they want to do.
Richard ... thanks for this article, and I agree that the good REO and other properties won't last forever on the market. I like what you said: "A house that has great features and great amenities will sell via a conventional sale, and will usually not make it to the REO market. There is always a demand for good properties." You are so right.
Richard, because there are so many bargains out there, folks expect them. Everything from the price of the property to the price of ancillary services...
Your building consultant for life in Nashville, TN
Too bad this sort of analysis is not part of the news reportage. Buyers usually seem to see the national numbers of foreclosures, sale slipping, etc without much local flavor or context. Great post.
No doubt that a well priced foreclosure that is also an excellent property will have high demand and in many cases sell for more than the list price.
You wrote:
An extremely desirable house will probably not suffer foreclosure!
That would be true were it not for the "negative equity" situation in which many home owners who must sell find themselves.
Great house? Should sell.
Priced right for market? Can't sell because owes more.
Tried Short Sale? Too slow. Buyers walk.
Solution? Foreclosure.
All of the above is the truth and nothing but the truth, except for condos. The Metro Atlanta condo market is flooded with brand new to 3 to 4 year old condos in some phase of foreclosure. They are going at half price or less and are in perfect condition. These are excellent deals!
Well said, especially the part about common sense. Obviously if the family had the resources to maintain the home well, they would probably also be resourcefull in finding solutions to avoid foreclosure in many cases. If they don't have the money for the payment, why would people expect the house to be a castle?
Excellent post! Here in Northwest MS, the foreclosures run the gammit from major rehab project to move-in ready. There are several desireable areas where you can always count on a well-priced REO in good condition to have multiple offers within the first couple of days on the market. A lot of buyers I have worked with are amazed at this because the national media makes it look like they should be able to get these homes at half-price.
Some foreclosed homes are terrible, some are great. The key to finding the good ones is working with an experienced Realtor. Follow their advice and be willing to put some sweat equity into the property.
Get your financing arranged before you start looking, be realistic about what shape a foreclosure is in, what you have to pay and what work you can do.
Good post with good points BUT in my market there are good home with desirable locations and ammenities that are forecloures. Unfortunately the sellers couldn't sell them as they just owe more than they are presently worth and the houses went back to the bank. These foreclosures go within the first month (usually the first week) and a great buys but buyers MUST be ready to act now when these come along.
Absolutely right and well put, hope many buyers see your post.
It's so good to hear AGAIN that foreclsoures are hardly the great deals that many buyers think they are. You hit it on head with one of the above comments, "sweat equity". Almost every foreclosure there's going to be time taken to get the property up to speed and many buyers don't really understand that. Ideally I would show my client the foreclosure possibilities and then we would move on to standard listings where there continue to be some excellent deals. I showed my client 20 foreclosed properties 2 weeks ago and yesterday 50% of them were Contingent or Pending. As was mentioned above, a few of these were the "shampooed" kind but the majority need enormous TLC. Thanks for the post Richard.
I find myself hoping investors find your post and read it! Offering half the list price on a home that has been on the market a couple of weeks is not going to get you anything-----Many have to learn the hard way after numerous homes are sold out from under them!
Lenn Harley and others here are correct. Good houses go to foreclosure in my area because the sellers are under water. A short sale takes so long to complete that the house goes into foreclosure. It's really a shame.
I have a two page hand out for potential foreclosure buyers and sometimes it takes and sometimes it doesn't. Buyers brokers that don't understand the process are the worst though. When I recently got an offer at 4 pm with an expected turn around time of 5 pm the following day from the bank. I told him specifically that it would not be likely. At 5:30 he is on the phone asking me to 'call' someone. Apparently he doesn't think that a bank closes. The next morning he was on the phone with my broker saying it was unethical for him not to get a response. Later, he called my client bank. This was not well received. By anyone. At the end of the day, he did not respond to my bank's counter, did not return voicemail or e-mail and said it was my fault the sale fell through. Spare me from the uneducated foreclosure buyer....Please.
The largest segment of our market is REO homes. The hardest part for the buyers is when they realize they will have to pay more than asking to get the better REO homes.
Good post Richard! Here in San Diego there are a ton of REOs! Many of which are pretty run down (if they didn't have the money to stay in the house then they didn't have money to keep it up, do repairs, remodel, etc.). But because we have such a high inventory there are actually quite a few that are in great shape! But you are right, there is a feeding frenzy around these properties and for the most part they do go above asking price (and many of the REO listing agents price them low to draw multiples).
I've been posting the BEST of the BEST San Diego foreclosures on my blog every week:
http://activerain.com/blogs/wannabelikemike1
Well said Richard - we are starting to see our local foreclosure shrink. We are down around 6% of our listings.
Patty,
Thanks I couldn't agree more. As late as today I was asked by clients to show some reo:s in
Tequesta, Florida, adn I was taken aback by the low quality (that includes every aspect).
Hopefully you won't mind if I copy your excellent Blog and hane out to some of my clients.
I couldn't have done it better myself! Thanks again.
Peter W Just. peterwjust.com (561)-309-6914.
The consumer has to be informed that their perception of the market may not be the reality of the market. I have listed many turnkey foreclosed properties in the last year and every one of them sold above list price. Now that the REO's have slowed down there is a pent up demand for them in my market.
In my area there are still a lot of REO's and they run the gammut from shack to waterfront resort homes (although not many of these), if the house has been on the market for 90 days I am seeing the banks get real negotiable, but the really good ones are often gone as soon as they hit the MLS and I do mean pending as soon as they are put in the MLS, I find this very frustrating! The banks have chosen to give all of the listings to a handfull of agents and not spread it around, this is not helping our industry at all.
There are a lot of misconceptions on the part of buyers with regards to short sales and foreclosures. A lot of this has been propagated by inexperienced Realtors and how they deal with their clients. As Realtors®, we are bound by our Code of Ethics which states that a Realtor should have the necessary competence to engage oneself in a transaction. That is why residential agents shouldn't get involved with large commercial deals. Same with REOs and short sales. It is up to us to educate the public on this issue and to recognize Realtor designations such as "member of Brand X REO Network" or "Certified Loss Mitigation Specialist", etc.
I have been showing properties both in short sale and reo status as well as homes listed in the market as a 'normal' listing and had to educate my buyers that foreclosures are not how they used to be. Banks got smart and realized that they can get market value for their homes instead of settling for the balance of the loan/loans. There are homes in foreclosures in the $1M range that the home does not need any remodeling or upgrades done and it is a foreclosure/reo yet there are homes that are in the $800K's that needs everything updated, so, what's their choice? Resale value? Absolutely! Location? You bet! Hire a GC and have to worry and travel back and forth from NJ to FL? Maybe not..
i have sold a number of foreclosures to some very happy clients. Yes, most have been in multiple offer situations but I always do as much due diligence as possible and ask my clients one question, "How bad do you really want this home?" In doing so, we construct an offer accordingly. 9 times out of 10 my clients have prevailed. I have one client right now that just had an offer expected with a bid $8k dollars over the asking price. She will be able to walk into a brand new home that was selling for $400k for $170k.
Yes, there are the addendums, maybe minor repairs and dealing with the banks but when you have prepared your clients to move expeditiously and they score that kind of deal there is nothing more satisfying that that smile on their face at the closing table. The key is educating your buyers, understanding how to work with REOs and acting quickly.
Richard, I L O V E the house...where is that particular one located? My builder husband would fix it up and make a Smart Little Dwelling out of it.
But, you are so right for a good ole Southern Boy...the foreclosed houses that I have been in, the upset Owners, have totally destroyed the insides and taken everything out that was take-out-a-ble. thanks for sharing, debra (formerely from Fairburn)
How do you guys get your pics on these comment sections? Duh!
Richard, I L O V E the house...where is that particular one located? My builder husband would fix it up and make a Smart Little Dwelling out of it.
But, you are so right for a good ole Southern Boy...the foreclosed houses that I have been in, the upset Owners, have totally destroyed the insides and taken everything out that was take-out-a-ble. thanks for sharing, debra (formerely from Fairburn)
How do you guys get your pics on these comment sections? Duh!