May 15, 2008
Bank owned foreclosures, a better buy?
Kiplinger’s Personal Finance publication that’s coming out for June 2008 will have an article entitled “How to Buy a Foreclosure” by Amy Bickers. The article starts out by painting a beautiful picture of someone that bought a foreclosed condo for $65k less than asking a year ago and is still happy with his purchase… a fairy tale ending with happily ever after and everything.
These stories always romanticize the foreclosure buying experience. “A great deal - instant equity!” “A house we could never afford in a neighborhood we could never afford!” We’ve heard it all. But, what’s the real scoop?
Thankfully, an article that started out all roses, later attempts to paint a true picture of what you’re in for when setting out on the foreclosure or REO adventure:
“The price may be right, but be prepared for the hassles. . .
. . . There’s no guarantee that buying a foreclosure will save money compared with buying the traditional way. Discounts vary tremendously depending on where you live. In fact, many foreclosed homes are priced higher than their true value because sellers are trying to pay off the mortgage and cover taxes and transaction costs. . .
Banks have a lot of these real estate owned, or REO, properties in their portfolios and are actively trying to sell them through agents. And unlike buying at auction, you can usually get a traditional mortgage for an REO. Unfortunately, lenders often list the property at or near market value to recover the outstanding loan amount along with legal fees, property taxes and maintenance costs.”
So, is buying a foreclosure really a great idea? For the average Joe, buying a foreclosure in an auction is next to impossible… who has all that cash to pay up front? Sure the deals are there (as with our prince in the fairy tale above), but what’s the point if they’re out of reach for us normal folks?
That leaves the REO’s listed through regular real estate agents. Can you get great deals by buying an REO? Maybe, maybe not. Here are couple examples showing each side.
GOOD DEAL: Three homes, all located within a couple blocks of each other. Which is the best deal? The bank-listed foreclosure with over a $100k discount.
Bank-Listed Foreclosure
144 W Crystal View Ave, Orange 92865; 4 bed/2 bath house; 1,559 sq ft; listed at $460,500
Currently Listed
127 W Brentwood Ave, Orange 92865; 4 bed/2 bath house; 1,561 sq ft; listed at $575,000
Recent Sale
327 W Brentwood Ave, Orange 92865; 4 bed/2 bath house; 1,566 sq ft; sold for $582,000
BAD DEAL: Three condos all in one complex. For less than the bank-listed foreclosure, you could get a two-bedroom unit. Not a good deal!
Bank-Listed Foreclosure
13722 Red Hill Ave #54, Tustin 92780; 1 bed/1 bath condo; N/A sq ft; listed at $204,900
Currently Listed
13722 Red Hill Ave #73, Tustin 92780; 1 bed/1 bath condo; 696 sq ft; listed at $189,000
Recent Sale
13722 Red Hill Ave #90, Tustin 92780; 2 bed/2 bath condo; 1,080 sq ft; sold for $187,000
mike.martin said:
Julie,
I’m seeing a lot of what you talk about out in the chilly East. But I have a weird story for you.
I crawled all around this one place while we were looking at houses, and we offered something like $280k. It was a seriously solid little house, with enough yard to build an addition, which is rare in this part of Beverly. It needed cosmetic improvements, but I had 30 pages of crude 3rd-grader sharpie drawings, and plans to start a little plant nursery in the gigantic side yard. I really loved this house.
The seller accepted our offer. Then, the bank hit her with another round of interest and fees, and she owed more on the loan than our offer.
Our accepted offer hung in the air for weeks. Our agent and the seller’s agent had nothing else to do but call us and call each other. Nobody was buying houses in February.
We backed out, and who knows what happened? But I just saw that the house — months later — sold for less than $240k!
It looks like the bank wouldn’t be reasonable when the owner finally had it sold, and ended up taking $40k less than it was worth. I guess I dodged a bullet on that one, and I like the house we did buy, but — any take on what might have happened?
May 16, 2008 6:49 AM
Julie Lance said:
Interesting story….
Personally, I think the banks are desperately trying to minimize their losses and they think by sticking to their guns and playing hard ball might be the way. When, of course, this doesn’t work, they have no choice put to “dump” the property. In this market, we’ve already seen that more than just the bankers need a reality check.
I have a friend trying to sell her condo via a short sale. She’s already had one buyer back out after making an offer because he was scared off. In my opinion, the banks need to be more proactive and work collaboratively with the sellers and their agents. Otherwise, their costs are just going to continue to increase.
Congrats on the new house, Mike! Good to hear from you.
May 16, 2008 9:27 AM