Part 5 of Distressed Properties are NOT Black Holes!, a six part series based on experience from a Sussex County real estate agent.
Many buyers rule out all foreclosures due to a lack of facts. I think this is a huge mistake and potential Sussex County, NJ, buyers are shorting themselves by not at least considering REOs. Part 6 will discuss the "cons" but here are some of the "pros."
Value: The homes are usually excellent value for the price. Great value. Top value. Wonderful value. Hope I'm making my point... (Now, distressed properties in Sussex County NJ and elsewhere are not the only good deals around. I always show my buyers all properties that fit their criteria - one of which is usually that they want a bargain.)
Condition: Not all bank-owned properties are in terrible shape. Sure, some are uninhabitable without a lot of work. Some need lots of cosmetics - painting, new carpeting, etc. Others, however, are in move-in condition.
Dealing directly with the owner: Pretty much like the relationship with any seller of a property, the listing agent has a direct contact at the bank.
Few multiple liens: All mortgages were wiped when the foreclosure took place. Even if other liens exist (taxes, home-owner-association dues, water bills), in my experience, the new owner is in the process or planning to pay them off. There may be banks that expect buyers to pay items normally covered by the seller, but I haven't encountered any yet.
Faster deals than with Short Sales: There is no third-party who adds a layer
to the transaction process. Banks already have the comps in hand and are WAITING to make a decision on an offer - they particularly favor offers where the closing is scheduled within 30 days. From offer to ratification is pretty quick; 3 - 4 business days in my Sussex County NJ REO experience. Lengthy back-and-force negotiations would increase that but it does not take long at all to get an answer on an REO. Once I had to wait over 24 hours for a counteroffer on an REO; my personal contact was sick and I opted not to hit the "for immediate help" key.
Once a verbal agreement is reached, the bank wants the buyer to initial all changes to the contract. The listing agent sends this amended form back to the bank, where it can take a couple days to process because it may need to go to multiple departments for the authorized signatures.
Commission fixed: The commission paid to your agent is set and agreed to in advance. For Short Sales, a bank might refuse to pay the full commission; this MIGHT mean you make up a shortfall. (Something to settle in advance with your agent when making an offer on a Short Sale listing!!!)
- Part 1 - Distressed Properties are NOT Black Holes!
- Part 2 - Short Sales can be a great thing despite Timeframe & Lowballs
- Part 3 - So You Want a Foreclosure: Bank-owned Properties - REOs
- Part 4 - Want to Steal a Foreclosure? Get the REO facts.
- Part 5 - Consider a Foreclosure - Advantages of REOs
- Part 6 - Pitfalls of Foreclosures. Disadvantages of REOs for Buyers
Copyright © 2009, Irene Kennedy, all rights reserved. This blog post from RealtorIrene.com represents Irene's personal musings.
I agree. Not only are foreclosures easy to buy, they are good value here. Short sales are good value too but not many get to the closing table.
Lenn,
There are days when I think I am the only agent who sees the plus side to foreclosures, based on all the bashing.
Thanks for letting me know I'm in great company!
Irene
great post, congrats on the gold star!!! (I read your rolling stone post and had to come peek! )
Michele,
I'm glad you did peek here too. Getting more comments about my funny little blurb than this. Now that I'm a superstar, I'm a lot more sensitive about my work and the camera angles.
Irene
Hi Irene -- What a great series you are writing about -- very solid! :-)
Chris,
You are very kind. I hope this helps buyers but would be even more delighted if I give any tip to help you or other agents.
Irene
If you are buying in this market and you are not buying a foreclosure, chances are good that you are leaving money on the table.
Buyers are absolutely shorting themselves if they don't consider a bank owned property. There are so many to choose from, those that just need a little TLC/paint, carpet, to those that require a handyman and every stage in between. If they are smart and do their research they can end up with such an incredible value with what properties are going for now, and have access to 203k loans for renovations, homes that require very little to no work, you just have to be diligent and do your research.
Heather,
Always nice to hear from someone who agrees with me! :-)
So many agents shun distressed properties. I hope they don't read my blog because it could mean fewer deals for you and me.
Irene
Mark,
I don't go as far as you do; I still get my buyers great deals on non-distressed properties. Naturally, I show those sellers with what they are competing from a price standpoint.
Maybe we should all wear blinders when it comes to who owns a property. Let our buyers judge it by other factors and then negotiate the best possible deal.
But those who immediately rule out distressed properties are missing a huge market segment - and many great deals.
Irene
Nice Blog Irene!
Thanks, Joel. And thanks too for your advice on running a series.
Irene
Irene, you are so right....REO's are for most a great value. It is just pending on how much a buyer is willing to work on.
Bettina
Well done post. A good portion of the Maryland bargains are in the inventory of lender owned foreclosures in the suburbs of Washington DC.
Yes, some are in poor condition. That opens the door for buyers that know how to use FHA 203(k) financing for the fix up.
Bettina,
Although rare, I've been inside some REOs that don't need any more work than a "regular" vacant home. In other cases, work is far more than a homeowner could handle - unless he or she is in the construction trade.
Thanks for saying hello!
Irene
Roy,
I lived in Gaithersburg for 7 years, so we probably were neighbors. Thanks for your input!
I agree that I would rather take an REO than a short sale most days. But in our area there are a disproportionate amount of short sales and fewer REOs, so I guess it pays to be flexible.
Melissa,
Could that balance be entirely YOUR fault?
You do such a great job closing the short sales that there isn't time for them to become foreclosures!
Irene
Agree!! This is why I don't want to touch short sales. Great blog!
I usually have buyers getting an FHA loan, and they never win in a multiple-bid situation (which the best lender-owned properties are around here).
I love selling REO's. It can be problematical to identify those in good condition, though. It always pays to preview. I was previewing yesterday for a buyer and the ceiling in the kitchen is falling. Went upstairs and it appears to be where the bathtub is.
Great point. Don't be scared ... go into the house and see what it is like. You never know the condition until you see the inside of the house.
Hi Irene
Where we are in Fl there are a lot of unbeliable good bus that have beeen foreclosed.
Thanks for your post.
Goodnight, Irene. I had to say that.
Kieran
Irene, just the opposite is true here. We can't keep any inventory of foreclosures. They are going for above asking price. (Except for those priced ridiculously)
Nelya,
As Melissa pointed out, there usually are many more short sales than foreclosures. This is true around here too. I don't rule out any category - bring on the business.
Joetta,
Multiple bids are rough. In my experience, they come in right after a price reduction. Perhaps you could time offers to avoid this rush. See my tip in part 4.
Vickie,
Pretty soon you'll be able to point out the feature that your buyers "wouldn't have to walk upstairs to bathe" because the tub is now in the kitchen!
Mike,
You hit the nail on the head. True of any home, got to go in to know.
Kieran,
That song - unsurprisingly - was the first I ever knew. Appreciate you singing to me.
Gabe,
In a way, I'm glad to hear that. The news on the Florida market makes it sound like nothing is moving. Hope you're on the "happy end" of multiple bid situations!
Great series Irene! Isn't it amazing that thanks to short sales, we are now relieved when a property is already owned by the bank? Foreclosures are so much easier and it is nice to know at the end of the day, there will be a paycheck!
What a pain in the you-know-what it is to deal with banks. One bank I am dealing with requires "typed" offers. Where is a Royal typewriter when you need one. http://en.wikipedia.org/wiki/Royal_Typewriter_Company
Sigh!!!
I love to deal with the banks and would choose it over private sellers any day. With them it is just the facts! Great post!
Dear Irene,
I can't say anything that hasn't already been said previously. I have thoroughly enjoyed reading your series and fully intend to share you sage advice with my buyers...will full credit of course!!!
Irene, very well written, I will try to check out your other links you posted.
At least with an REO, there is an asset managers who WANTS to get the property sold. WIth short sales, sometimes i wonder. Aloha...
Bank Owned homes are most of the market around here. They are what people want.
Lee,
I have yet to write out an offer. My company has all the forms online - an enormous timesaver! Most of the bank-specific forms are PDFs in which I can type the info, so I've been lucky.
Pat, Sonya, Judy, DeAndrea, Ronnie, Gene,
Thanks so much for your thoughts! I appreciate you all taking some time to respond.
I agree they are great value..but I had recent had an issue where the home had about 20 violations and some of them are very big ticket items includes the whole fence and patio did not comply with the HOA regulatuion. In those instance it does not matter if you are purchasing a short sale or a foreclosure you inherit those voilation.
Ritu,
Ouch! Those unpleasant surprises can crop up in any transaction. Did your deal go through?
I like the idea of foreclosures better because they are ususally on the fast track to close. I think REO's represent a better value just for the time limitations on short sales alone. Too much time wasted going nowhere with the seller, the bank, etc. As Lenn pointed out - what is the closed percentage of short sales? Not very high.
Lyn,
Thanks for adding a view from the Windy City!
Great blog...good job!
Can you tell I'm blushing modestly, Carlos? Thanks for your input.
Foreclosures are selling like hot cakes here in San Diego. I've been working with A LOT of buyers (everyone from the first-time to the investor) over the past couple of years buying REOs almost exclusively. It has turned into a feeding frenzy the past year with 5-6 offers (minimum) on most properties...I've even had a couple with 20 - 30 offers --- I'm not kidding!
You make me envious, Michael. Can't imagine 20 offers on a single property, but I'm in a rural area, not beautiful San Diego!
Bank owned properties are moving so fast in parts of Orange County that we can't find enought good properties for our buyers.
Brad49er,
That is happening in lots of places. The REOs in decent shape often get multiple offers very quickly. Just remember that one can get a good deal on "regular" listings too!