“El barato llega a ser caro”
The cheap becomes expensive!
That’s what Judge Marilyn Milian of Peoples Court says — she’s always quoting her grandmother when she admonishes buyers for taking advantage of a deal that’s really too good to be true.
In fact, my business partner Randy always tells me: “If it seems too good to be true, it probably is!”
Yet buyers are always asking me about FORECLOSURES, because they want a “deal.” Are there really “deals” in real estate?
Foreclosures are cheap — or at least, they “look” cheap compared to other real estate prices. So are foreclosures really a “deal?”
Here’s the real scoop on foreclosures: Yes, foreclosures are “cheap” in comparison to lots of real estate prices.
Banks want properties to sell fast. So they instruct their listing agents to price the properties low, to get offers. Banks are in the business of making money off of money. So when they take back a property, they want to convert it into money as quickly as possible. Owning property is expensive… taxes, maintenance, insurance, etc.
However, the banks don’t “give away” property, either… there’s no money in that! Yes, banks may take a loss–but they always try to get the highest amount the market will bear.
I know, because I do “Broker Price Opinions” for banks all the time. When banks are marketing a foreclosure, they order these Opinions from local brokers and try to determine the fastest, highest price. So while foreclosures are “priced low” — they aren’t priced “lower” than the going rate.
The market… supply and demand… the ability for buyers to get loans… inventory… it all goes into factoring any price. Lots of houses on the market, you have to compete for the few buyers out there, you keep lowering the price to “win” the competition.
Therefore: You don’t have to buy a foreclosure to a deal.
A seller who wants to and has to sell, will lower their price, too–including a seller who owes more than the house is currently “worth” (scroll down to my entry on Short Sales).
Also, banks have layers of decision makers. So when a bank sets a price and terms… there’s not a lot of room for negotiations. Once the bank decides on a price, they have researched and confirmed to their satisfaction that the price is right, so there’s not a lot of room for changing the institution’s mind… there’s SOME wiggle room–because there’s probably a “range” where a bank can okay without more research and approvals, but the bank usually goes with it’s best price right out of the gate to get the deal done.
Regular sellers are deciding for themselves what time and money is worth… so you could “low-ball” a seller and if they HAVE to move or are TIRED of waiting, they might lower their price for you. In addition, many banks don’t want to do repairs, wait for contingencies, or pay for “extras.” In fact, some banks have their own purchase contracts where what a buyer would normally have in terms of time and conditions are not an option… For instance: in a California Association of Realtors contract, buyers usually have 17 days to inspect the property and not risk their deposit. One contract I’ve seen recently only allows the buyer 7 days to have a home inspection and AUTOMATICALLY puts the deposit “at risk,” if buyer doesn’t cancel before the deadline.
Finally, foreclosures may require extensive repairs. Some foreclosures are still in good condition — but I’ve seen some pretty beat-up foreclosures. Here’s the rationale: If you don’t have money to make house payments, you probably don’t have money to make repairs–and if you did, would you repair a property you are losing? or save the money for a rental deposit? If you are “losing” your home, you might not have money for a cleaning crew or some people might even be bitter on their way out the door.
The most EXTREME case of a foreclosure needing repairs was a home I showed last month. All but two of the doors were gone. The countertops were gone. The toilets were pulled right off the floor and missing. Some of the light fixtures and faucets were missing. The house was nicely remodeled, but I think the people who remodeled the house felt like they improvements were “theirs” and just removed them! The house was priced really “cheap” — but you would have to buy a lot to just live there… (unless you could live without toilets). And some foreclosures will have newer flooring and new paint. Other foreclosures will just be dirty.
So my conclusions, as a busy Realtor in this market?
1. Buy with a Realtor. We can run numbers on foreclosures and fair market sales to help you get the best price the market will allow regardless. If we’re dealing with banks, we can speak their language. If we’re dealing with resident/owners we’ll help you research that sellers situation so that maybe you can negotiate a price you think is a “deal.” Either way buyers do not pay for their agent’s commission. Sellers pay agent’s commission.
2. Foreclosures are priced low, but may require some work.
3. Foreclosures “pressure” the market to lower prices to compete… so even if you look at non-foreclosures, you are liable to get a competitive price.
4. Right now most foreclosures are “listed” on the MLS — there is no “inside track — no “special list” — no “certain way” to buy a foreclosure. Many of the foreclosers available are sold through traditional and conventional means, but Realtors, such as myself. I’ve been on those websites that say “foreclosure” listings, etc. There’s nothing there, that I can’t find on my own, being a Realtor.
5. Use Randy and me as your agents: Randy has been around through a couple of real estate cycles and knows how to negotiate with banks. Randy is a broker so he has 25 years of experience in real estate contracts and have overseen more than 7500 real estate transactions. I show about 40 properties aweek, so I am keenly aware of the local inventory, price trends, condition. Also, I complete approximately 100 Brokers Price Opinions a month, so I know what banks are analyzing in terms of value. We can help you make a deal you want! Let’s go find a deal!
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