Are you looking  for a deal in real estate?   Then you are undoubtedly interested in foreclosures. Buying a bank-owned home or property is really not too much different than buying real estate from a private individual, except that the bank’s specific forms, terms and conditions of the sale will in many cases supersede the standard State contract, disclosures, and closing/escrow procedures.   What the bank wants, the bank usually gets if you want to buy one of its property. Knowing what you are getting into in buying a foreclosure is the key to be successful in buying one.

THE TIMING CONSIDERATION. Timing is a significant factor in buying a foreclosure.   The first thing you’ll want to know is how long it’s been on the market. When a bank  initially lists one of its foreclosed properties, it will set the asking price close to what it considers market value, based on perhaps a current appraisal or one or more Broker Price Opinions (BPO’s).  Consequently, when it first hits the market, it might not be much more of a bargain than any other comparable homes on the market.

The other thing to find out is if and when the price was last reduced. Unlike many individual sellers, if the home does not sell right away, the bank will reduce the price at regular intervals (usually monthly), until it hits the “sweet spot” and sells. Once it hits the sweet spot, you’ll need to move quickly. Of course, that’s the hard thing to know, when has it, in fact, hit the price that will trigger offers from other buyers. You as the buyer should also consider your own sweet spot so that when it hits the price at which you are willing to buy, then you make your offer immediately. What you shouldn’t expect is to come in at any stage and make a real low-ball offer that will be accepted. Banks are not actually giving away their REO (real estate owned) property, despite popular misconception.

THE MULTI-OFFER SITUATION. Banks do seem to be getting more motivated as the inventory of foreclosures has continued to grow and  become overwhelming.  Therefore, a newly listed bank-owned property may be in fact priced well below market value, or the bank may  accept a low-ball offer despite it being newly on the market or having just had a price reduction. The risk you take whenever you make a low-ball offer is that another buyer may have made, or will make, another, higher offer at the same time.   Multiple offers are not uncommon when a foreclosure hits that sweet spot in pricing. When a multi-offer situation present itself, the bank normally will ask each buyer to resubmit his or her best and highest offer.  That is another reason to decide on your “sweet spot” beforehand, so you don’t get caught up in the auction euphoria of a bidding war.

COMPETENT AGENT, COMPETENT BUYER. If you want more information about any foreclosure, including how long it’s been on the market, how many times the price has been reduced, when it was last reduced, and how the current asking price compares to the rest of the comparable market, your local Realtor should be able to tell you. Be sure the real estate agent you choose to work with has some experience in selling foreclosures, particularly in working with buyers. While the listing agent certainly has experience and knowledge of the foreclosure process, you must keep in mind the listing agent represents the bank/seller, not the buyer.

While you as a buyer want a competent  agent, you also need to make sure you are a competent buyer. That means you must get pre-qualified for any financing, since almost all banks will require that a pre-qualification or pre-approval letter be submitted with any offer. If you are paying cash, you must ensure you have funds that are readily liquidated (i.e., you can get quick access to them) and be able to provide proof of such funds with your offer.

THE UNTOLD TRUE STATUS. Bank sellers often have different policies about how their listings are shown on multiple listing services, including whether the status may be changed from Active to Under Contract or Pending after an offer is accepted. So, don’t be surprised if you call on a listing that appears to be available, when, in fact, it is under contract or in escrow. Some banks will allow back-up offers in that case. Others will not.

A frequent occurence while a foreclosed property is listed on the MLS is that it goes into auction status. That means it is turned over to an auction company to sell at auction. In that case, you will only be able to buy it at auction. Most auctions these days are held online where your real estate agent can place a bid for you.   Most auction sales are cash only, with a few exceptions.  If a property does not sell at auction, it is sent back to the listing agent, who continues to market the home for sale through the normal MLS process.

THE “AS IS” PURCHASE. As you’ve probably noticed in almost all bank-owned listing, the home is being sold as is, where is, with all it’s faults, etc., and that no warranties are made by the bank owner or its agents. This does not mean you do not have the right to have it inspected and make sure you want it “as is.” It does mean you cannot nor should not expect the seller to make any repairs or other concessions for the property’s condition. If you do not want the property following an inspection, you will be able to terminate the contract and get your money back.  Keep in mind that most bank sellers will want you to complete your inspection in a very short period of time, usually 10 days after acceptance, and in some cases, as little as 5 days!

GOOD DEAL OR JUST REALLY BAD CONDITION? While foreclosures definitely represent good deals in many cases, not all foreclosures are equal. Some can be in quite good condition, others may be in deplorable condition. Remember, the price is normally a reflection of that condition.  If it seems too good to be true, it probably is, or rather, it means you will be buying a major fixer not meant for the light-hearted or inexperienced rehabber.

OTHER GOOD DEAL OPTIONS. Frankly, in today’s market, there are good deals  that are not bank-owned.   So, you might not want to limit your search to just foreclosed properties.  As new foreclosures hit the market, and probably will continue to do so through this year and into next, it provides incredible competition for other homes being sold by individual sellers.  This competition of low-priced foreclosures has had a huge and adverse impact on today’s home values. As a result, if an individual seller is really motivated to sell, they must price their homes competitively.  Sellers can only be competitive if they have the equity to do so.   Even without equity to work with, if the seller really has to sell to avoid being foreclosed on, that’s when you see the short sales (when the sale price is less than what the seller owes on his mortgage), which again, reduces the overall values of competing homes.

Whatever deal you are looking for, an experienced, knowledgeable real estate agent will know whether any home for sale is a good deal, a great deal, or just good value and well-priced for today’s market.  If you are knowledgeable and prepared to deal with the challenges of buying a foreclosure, the a good deal, indeed, awaits you!

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Although I work out of my real estate office in Montrose, CO, I also live in Ridgway, Ouray County.   I get the occasional listing or buyer looking in this area, which alway pleases me, since I love living here so much.   Today, as I work from my beautiful home with the spectacular view of the Cimarron Mountains, I thought I’d take a look at the residential active and sold listings for Ouray County on our MLS.   For sold listings, I limited it to sales within the last 6 months.   I excluded trailers or mobile homes that do not include the real estate.  Otherwise, these listings will include stick-built,  manufactured, modular homes and condos and townhomes. 

I found 262 such listings, of which 28 sold in the last 6 months.    That represents less than 11% of the inventory.  Of the active listings, prices range from $99,000 to $7,995,000.  Average asking price is $603,916, and median asking price, $408,000.   Average days on the market is 332 (and counting).

Of the sold listings, the prices ranged from $99,000 to $770,000.  The average sale price was $306,579, and median sale price, $260,000.   Average days on market was 225.

Out of the 262 listings, 17 are bank-owned (foreclosures), which represents less than 7% of the total market.  Of these 17 listings, 10 sold within the last 6 months, ranging in sale prices from $148,000 to $328,000.  Those 10 sales out of the total of 28 sales means that almost 36% of the sales were foreclsoures. 

Of the 7 active foreclosure listings, 3 are under contract ranging in asking price from $144,900 to $292,500.  The 4 remaining active listings not under contract range in price from $155,000 to $450,000.  The latter started out with an original price of $750,000!

Obviously, what is moving in Ouray County are the real bargains (i.e., bank-owned) or more affordable homes for Ouray County, i.e., close to $300,000 and under.  While it truly is a great time to buy in Ouray County, in fact, there is not a whole lot of bargain or affordable inventory.  Such inventory that exists goes quickly.  So, if you’re thinking of buying in Ouray County, you will need to keep a close eye on the market and move quickly.  Snooze, you will loose!

Happy May Day!

Ninah Hunter
Keller Williams Colorado West Realty
(970) 318-0064
www.NinahHunter.com
Ninah@NinahHunter.com

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We hear a lot about “foreclosures” and buyers and investors looking for “foreclosures” and real estate agents advertising  “foreclosures.”  In fact, what most of these people are referring to are REO (real estate owned ) properties, that is, real estate owned by the bank.  These are properties that have actually gone through the legal foreclosure process, been offered for sale at a public auction, and when no one exceeds the bank’s minimum bid, it goes to the highest bidder, i.e., the bank.

Once the bank gets the property back, it then lists it with a local real estate broker, usually after getting 2-3 BPO’s (broker price opinions) and possibly a formal appraisal.  This means that when the property is initially listed, it is listed at a price the owner/seller/bank believes is market value.  If it doesn’t sell right away, the bank will generally lower the price, and keep lowering the price in regular intervals, typically after 30 days.  This is, of course, just a general rule, and not all banks readily lower their price or do so within any given period of time.

That is one benefit of foreclosures (i.e., REO’s, bank-owned properties).  If you’re patient, and not emotionally tied to a particular property, you can keep an eye on it and wait till the price hits your “sweet point.”  The flip side, of course, is that someone else my swoop in and buy it first.  The pitfalls and problems of buying a foreclosure are the subject of another post.  But in today’s economic climate, foreclosures do spell “bargain” for a lot of people.

If you’re searching for foreclosures on the internet, a good indication that a property is an REO (if the listing doesn’t flat out tell you) is that it will indicate that it is sold “as is, where is” and that the seller makes no warranties, etc.  This doesn’t mean you are totally at risk.  If you go under contract on a foreclosure, you still generally have all the rights of any buyer to do your due diligence with respect to inspections, title review, review and approval of covenants and HOA governing documentation, and getting your financing if the contract is conditional on that.

In a recent presentation by the Montrose County Public Trustee, Rosemary Murphy, last month, she revealed that at that time,  there were already about 120 pending foreclosures.  She said she was expecting about a total of 400 to be filed by year’s end.  This compares with about a total of 160 filed in 2009.  For more information on the pre-foreclosure process and public auctions, visit the Montrose County Treasureer/Public Trustee Site.  There you can also get a list of properties currently in foreclosure and of the pending pre-foreclosure sales and outcome of such sales.  I just checked, and there are 26 pages of pending foreclosures.

As Public Trustee Murphy told us, the vast majority of these properties will not sell to a private buyer at the public auction.   Consequently, we can expect many, if not most, of these to become bank-owned/REO properties, aka “foreclosures,” that will soon come on the market as an MLS listing with a local real estate broker.  I just checked the local Internet for REO/bank-owned residential properties in Montrose County.  Click here for a list of these 62 listings.

Foreclosures are a sad and continuing fall-out of the economic disaster we have been experiencing the last 3 years.  But foreclosures also represent a golden opportunity for those who can take advantage of them, whether as a first-time homebuyer or an investor.  To find out if buying a foreclosure is right for you, consult your local foreclosure real estate expert.

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Almost everyone is looking for and expecting to get a great bargain these days. There’s no question it’s a buyer’s market, but when it comes to foreclosures, don’t expect the banks to give it away, any more than a private seller would. REO’s (i.e., foreclosed, bank-owned) properties do offer some of the best bargains around, but if you’re expecting banks to accept your lowball offer, you need to keep in mind a few things.

First, banks have already taken a substantial hit by the time they become the owner of the property they have foreclosed on. They’re not in a very charitable mood to lose any more than they have to. Second, before the property is listed with a real estate agent, the bank has obtained at least 2 or 3 BPO’s (Broker Price Opinions) and an appraisal. Consequently, the lender seller sets the asking price at current market value, if not slightly below. Depending on the property and the price point, these properties generally move fairly quickly. Homebuyers and investors who know the market will recognize these as good value and move quickly. If a buyer makes an unreasonably low offer, many banks won’t even respond or they’ll flat out reject the offer with no counteroffer.

You have to keep in mind, too, that banks are not really concerned about a buyer’s timeframe, even the one set out in the proposed contract. They move at their own speed. So, if they don’t accept your offer or respond by your acceptance deadline because it’s not a reasonable offer, it’s no skin off their nose. They may wait for another offer or two to come in. If there are multiple offers, they may ask all buyers to submit another offer and take their best shot.

This doesn’t mean you can’t make a killer deal on a foreclosure, however. Unlike the private seller, banks or their asset managers handling the sale, have no emotion wrapped up in the property or a pressing reason to sell, other than to get these assets off their books. Therefore, if the property doesn’t move within the first 30 days or so, many lenders will periodically reduce the price until they hit that “sweet spot” that will get it sold.

For these reasons, if you are basically an investor with time and patience, you should pay attention to days on the market and try to time any offer for 3-4 weeks after the property is first listed or the last price reduction. On the other hand, if you really fall in love with the REO home that is perfect for you and your family, then don’t wait or lowball. Make your best offer as close to the asking price as possible, if not slightly over, and hope another offer is not on the way. It will still be a good bargain as well as home sweet home.

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