Purchasing Foreclosed Properties
The current Real Estate Market has seen the number of foreclosure properties increase. While Montana has not been hit as hard as many states like Florida, Nevada, and California, there are homes that are bank owned in our local markets. These bank owned homes have brought out many buyers looking for great deals.
Many people seem to assume that a bank or asset manager will be willing to accept extremely low offers because they don’t want the property sitting on their books. I hear statements like this constantly, “The bank will accept a low-ball offer because owning Real Estate is not their business and they want the house sold.” It is true that banks want to get their properties sold, but the reality is that foreclosure properties usually sell fairly close to asking price.
I recently looked at sold data for the past six months that indicates foreclosure properties generally sell for a greater percentage of asking price than non-foreclosures. The data indicated that foreclosure properties sell for an average of 95% of asking price, while non-foreclosure properties sell for an average of 92% of asking price.
If this is the case, then where does the notion of getting great deals on foreclosures come from? In general, banks price their properties lower to begin with. Many sellers have had difficulty coming to grips with the realities of the current market. A typical seller has emotional ties to their property and they may believe that there is something special about their home that has protected its value.
This is not the case with banks. They generally order multiple appraisals or Broker Price Opinions (BPOs) to try to determine current market value and then price the home to sell quickly. If the initial price does not attract offers, they generally reduce the price until it does.
These low asking prices attract buyers. Many buyers have found themselves in multiple offer situations bidding against other buyers for foreclosures because the asking prices are so low. With this in mind, buyers should look for great buys that come on the market and then be prepared to pay fairly close to asking price.
Buyers interested in purchasing a foreclosure home should look the home over very carefully before making an offer to approximate what they will have to spend on repairs. Banks will usually allow a buyer 7 to 10 days after an offer’s acceptance to inspect the property, but if issues are discovered then, it may be difficult to negotiate those repairs with the bank.
Foreclosure properties are almost always sold “as is, where is,” and banks have been notoriously difficult to deal with when it comes to repairing a home prior to the sale. If a foreclosure home is priced $20,000 below the home down the street, but it needs $40,000 worth of repairs, it might not be such a great deal after all. Also, many foreclosure properties have had the appliances stripped out, which can also increase costs to the buyer.
Someone purchasing a bank owned home should be prepared for slow response times. While a buyer may be able to get a response from a typical seller in 24 to 48 hours, it can take much longer when dealing with banks. Throughout the process, the buyer should be prepared for longer wait times when requesting a signature from the bank on any documents or contracts.
Additionally, buyers should expect to sign long addendums prepared by the bank. A typical Buy-Sell in Montana is usually about 9 pages. A bank’s addendum to the Buy Sell can be 15 to 20 or more additional pages. Buyers should carefully read any addendums and may want to seek the legal advice of an attorney. These addendums almost always have language stipulating that in the case of any conflict between the original Buy Sell and the addendum, the terms of the addendum take precedence.
Buyers should also remember that there are a lot of great deals available that are not foreclosures. Some buyers seem to believe that it’s only a good deal if its bank owned, but that is not the case. If a seller needs to sell, and they price their property accordingly, it might be a better deal than a foreclosure.
I’ve seen buyers pass up great buys on homes because they think it can’t be a great deal unless it is a foreclosure, which makes absolutely no sense. There are great buys in the marketplace right now; some are short sales, some are foreclosures, and some are simply regular homeowners who have priced their home to sell quickly in the current market.
How does a buyer make sure the home is a good buy? Working with a good Realtor® who can show the buyer what similar homes have sold for in the area is the best way to determine market value for a home. The more recent the sale, the more applicable the information is.
The process of purchasing a bank owned property can be more complicated and frustrating than purchasing a home from a typical seller. But, if a buyer is well prepared, it can be a good way to find a great buy.
Tim Ford is a Realtor® with Vellinga Real Estate in Bozeman, Montana. He can be reached at (406) 209-1214, or by email at firstname.lastname@example.org.