June 18th, 2012 4:03 PM by Rob Robbins
We are discussing foreclosure properties in this session.
When a buyer comes into my office they are interested in foreclosure properties and tell me about all the stories they have heard from friends about the unbelievable deals someone received when buying a foreclosure.
I then spend 30 minutes bringing them back to reality. Markets are different and I can only speak for our market with facts. The facts are foreclosure homes are bringing 10-30% below market values in the Tri-Lakes area. Yes, you find one once and while at 50% of market value. Let's look a little closer.
Foreclosure homes are priced based on two criteria. One, sale comps in the last 90-180 days with allowances for condition or cost of repairs. Second, based on sales comps what price will it sell for in 30 days, 60 days and 90 days. Generally it will be an average of the two criteria.
The owner of the foreclosure is a lending institution which does not want to own property. You have an owner that is going to sell the property no matter what. The lending institutions would like to have it sold in 60 days. They are so busy they do not have time to negotiate with someone that may not buy the property. I know that is hard to understand but is a fact.
So how do we evaluate the foreclosure? We know we have a willing seller. We need to compare other sold comps and active comps on the market to help us understand how they arrived at the list price. We need to evaluate the condition of the property and estimate the repair costs. As the buyer you are almost always going to be the one doing the repairs. Not the lending institution. Do you have cash for the repairs? Can you put some of the repairs off until you have more cash to invest? Always remember, if it seems to good to be true it probably is. The people pricing these properties are experts that do this everyday. If it is too cheap it must have expensive repairs needed or be in a remote area. Sometimes those are hard to spot. Some would say, they will disclose what is wrong with the property. That is not necessarily true. You are buying the property as is. They have priced the property at a reduced amount and they have not lived in the property to disclose.
How does the property compare with purchase price, repair cost and the amount of cash it will take compared to a property that is in move in condition? If it compares well and provides some instant equity after repairs then purchase it.
If not, then go purchase a property ready to move into and enjoy your purchase instead of breaking your back and your bank account. A move in property takes less cash to finance and will easily be sold in the secondary market which often provides for a better interest rate.
Rob
