Mat-Su Foreclosures. The Good, The Bad, and the Ugly, Part 3

Foreclosures Part One was about pre-foreclosures,Part Two was on foreclosure auctions, this article will be about the most common foreclosure purchase.  That is purchasing a foreclosed house that is represented by a Realtor.

Many people assume that foreclosures are automatically good deals.  The truth is that most foreclosed properties are sold for exactly what they are worth.  You can’t expect to buy a foreclosure that is listed by a Realtor and immediately make a profit on it.  By definition, lenders are professionals in financial matters.  It is in their best interest to receive the highest price possible out of every house in their possession.  They usually accomplish this through time tested methods.

After an institution takes possession of the property at the auction they immediately secure the property and change the locks.  Occasionally, if the property is abandoned before the auction they will do this previous to the auction.  The property will be winterized and inspected by a property manager. 

An appraiser and a Realtor will provide a value to the lender.  The lender will occasionally get more than two opinions on the market value of the property to help them determine their initial asking price.  The initial list price is often slightly higher than the real market price.  The lender will then go through a series of price reductions at regular intervals. 

The property in the top photo is currently listed with Elizabeth MacMullen of RE/MAX of Wasilla for $283, 500 and it initially had a ten day hold.  The ten day hold means that the seller will not open any offers for ten days.  That is too ensure that if they undershot the price, more than one buyer will compete for the property and potentially bid the price up.  If the property doesn’t sell for a period of time, usually about 45 days, they will drop the price by a fixed amount.   There will be another ten day hold after every price reduction.  This will continue until the price and the market value will eventually meet and the house will sell.

Although this is not the best strategy in a declining market, private sellers would be wise to take a hint from the professional sellers.  The foreclosed homes always eventually sell, and they sell for their value without leaving a lot of money on the table.  The only problem is that in a declining market if the lender initially overpriced the property, they will chase the market price down, eventually selling for a lower price than they would have if they would have started out at a lower price.

I had a lender do exactly that last year.  I suggested a price of $170,000 but they listed it for $199,000.  We got seven offers on the property before they eventually took $155,000.  The crazy thing is that all six of the previous offers were for more than $155,000.  Like most lenders, they have a previously determined margin in which they will entertain offers.  All of the previous offers on this house were just outside that margin and were rejected.  Then the lender would drop the price and someone else would make another offer for a little lower than the margin, we slowly marched down in price until we finally had someone step in at $155,000. 

It is important to realize that lending institutions aren’t your normal everyday sellers.  For example, they are not as willing to pay the closing costs most sellers agree to pay.  They will usually not pay for an appraisal, title insurance, or asbuilt surveys.  They usually do not pay for any repairs needed on the structure.  Sometimes they will not pay any closing costs at all so that the buyer needs to pay all of their own closing costs and also the costs normally paid by the seller.

Most of the time you will need to patiently wait for the wheels of bureaucracy at a big bank to slowly turn.  You might write an offer hoping for a quick response only to find out that you will be lucky to hear anything at all from the bank for up to two weeks. Sometimes it will be much longer than that before they will respond to your request.

If you would like to take a look at any foreclosed properties, give me a call.  I enjoy comparing these properties to others on the market.  The nice thing is that you know the bank will eventually come down to the market value.  Many, and perhaps most, current private sellers refuse to come down to the market value and let their listing expire.  They hope to wait for anther sellers market before selling at a reduced price.  A bank is going to sell their property, no matter how low they have to go to get it done.

My cell number is $232–7900…  Or just click the contact button to the right to send an email.