How can I get the best deal on a home? Where do I start? Part 7
If you have had the patience to read through the previous Blogs
in this thread, many of which go into great detail about loans,
you now have an idea of what to expect and the long term impact
the decisions you are about to make will have on your future.
There is an old Latin saying, “forewarned is forearmed.”
REO Property Update
It may be a good time to discuss some aspects of the current market
in August of 2008 for our local area. Bank Owned properties (REOs)
are a significant segment of that market. At least 25 percent of the
homes sold in the past year have been REOs. They are properties
that have gone through foreclosure. The bank now owns them and
puts them on the market for resale. The banks are not intentionally
in the real estate business and they would like to clear these off their
books.
However, the banks are just like any other seller. They want to get
as much as they can for each property. Observing the activity, the
asset managers seem to be as vulnerable to poor decision making as
are individuals who sell their own homes. REOs often come on the
market over priced. When they sit on the market without receiving
offers, the asset managers reduce the prices and the properties do
sell.
Over 25% of the REO properties in pending sale status (properties
for which a purchase price has been agreed upon by the
buyer and seller and are waiting for the buyer to complete their
inspections and wait for lenders to process and fund loans) were on
the market for FOURTEEN days or less.
Historical data shows that REO properties consistently sell for a lower
price per square foot than do the overall properties sold, usually by
more than ten percent. That fact coupled with buyer perception that
REOs are the best deal on the market creates an interesting dynamic.
Buyers frequently find themselves in multiple offer situations when
placing offers on REO properties. Buyers find that if they really want
a property the have to submit an offer OVER the asking price (an
undesirable position for any buyer). The banks want to create a
bidding atmosphere, increasing the selling price considerably.
The perception that a buyer could pick up an REO property for fifty
to sixty percent of the asking price was always a pipe dream. In
today’s market the myth has evaporated completely.
My year long study of REO sales in El Dorado Hills and Folsom clearly
shows that it is difficult to get any bank to lower their price more than
5% of the asking price. It does happen in rare instances but it is more
common for an REO to sell at, or over the asking price.
If one views the data with perspective, a five percent reduction in
asking price still represents a significant savings. The key is not to
let emotion take control and pay above market price for any REO
property.
Also remember that REOs are sold AS/IS. The buyer usually has to
pay for their own inspections and repairs. The only thing the bank
usually guarantees is a clear title to the property—an important issue.
Of course, each property is unique. Each has to be studied individually.
Once you find a property that you like, you should ask your Realtor to
do extensive research. When you decide to make an offer you should
know about as much about the property as possible. Understand what
the market value of the property is and no not offer more than that
market value.
There are a lot of excellent buys out there. You just have to expend the
effort to find them and decide on the one which meets you needs and
wants.
Of course, I would be pleased to help you find that ONE. Just give me
a call.
Stay tuned for part 8.
