A quick search on Google (or any other search engine for that matter) for information about purchasing foreclosure properties will net you all kinds of information, mostly untrue and mostly centering on how, if you just send money, you can get information about all of the “deals” out there. Which, they assure you, you can buy for a song, flip for a profit and, voila, you are on your way to making your fortune as a real estate mogul. Unfortunately, that’s not quite the way things work in the real world and the only party likely making a fortune is the one convincing you to part with your money for this "valuable information".
So, in the interest of keeping your money where it belongs (in your pocket), I’d like to clear up a few misconceptions:
- Finding out about the property “before” it goes on the market is not going to give you the jump on competition. Banks are grinding bureaucracies filled with systems. The process for selling an REO (a euphemism for foreclosure property which stands for Real Estate Owned) includes establishing value, assigning an asset manager, assigning a real estate broker to submit it into MLS and expose it to the market, accepting offers for review and ultimately selling it under the “highest and best” circumstances. In fact, many banks are so concerned about fully exposing the property to the market, they will not even review any offers until the property has been in MLS for at least 5 days.
- Banks are probably not going to accept a lowball offer, particularly when a property first goes on the market. In most instances, the bank has reviewed a number of BPOs (Broker Price Opinions) or Appraisals prior to pricing the property. In the mind of the asset manager, the property is offered for sale at Market Value and that is what they expect to get. In fact, a well-priced property often garners multiple offers and ends up selling for considerably more than asking price. Yes, MORE THAN ASKING PRICE! You are more likely to be able to negotiate on the price of a property that’s been kicking around for awhile (although there’s no guarantee there either).
- If a property is listed at what seems like a “really” low price, there is probably a very good reason. When making phone calls to other agencies about their foreclosure properties I routinely ask questions such as, “Does it have a furnace?” or “where are the ceilings currently located?” Many of these properties are in very difficult condition and you may not be able to get a loan on it unless it’s an FHA 203K Rehab loan. Remember, if you do plan on utilizing a Rehab loan you must qualify for the price of the property plus the cost of the repairs. In other words, if you qualify for a loan of $100,000 you cannot purchase a $100,000 foreclosure that needs $50,000 worth of work.
- Demanding that your agent get you the telephone number for the asset manager so you can “cut through the bullsh*t” is not going to help anything. The only person who knows who the asset manager is would be the listing agent. And if the listing agent would like to continue listing properties for their client they are not going to give out telephone numbers to the general public. If banks wanted the general public to be able to contact their asset managers about properties they would make that information readily available. It is not readily available for a reason. Most asset managers already have hundreds of files they are dealing with at any given time. They simply cannot deal with the many buyers interested in each of those properties.
- Please do not fall prey to the idea that banks, “want to get these properties off their hands because they are just losing money hanging on to them”. There are many things going on behind the scenes that you and I are not privy to. For instance, there was a heated lawsuit against Carrington Mortgage claiming that Carrington’s MBS (Mortgage Backed Security) deals contained a provision that allowed them to completely control the asset disposition strategy. It further alleged that Carrington was using this provision to force a strategy that protected its interest, at the expense of all other investors, by preventing the sale of REO properties. You see, after a home is foreclosed bondholders continue to receive principal and interest payments each month. Once the home is sold, payments stop and since the holders of the riskiest, lowest-priority bonds often end up getting little or nothing from sale proceeds because other investors have higher-ranking claims on that money, owners of the riskiest type of bonds (like Carrington’s hedge funds) stand to gain from delays. According to Anthony Sanders, a former Deutsche Bank AG mortgage-bond research director who is now an Arizona State University professor in Tempe. “These types of lawsuits show there are really perverse incentives for servicers, andmortgage-bond-investor conflicts, that have wreaked havoc amid the housing and banking crises.”
The bottom line here is that there are many things in the world of REOs that do not follow common sense and you do yourself a disservice if you spend all your time trying to change the way things are. Your time would be better spent positioning yourself to be ready when you do see a property come on the market that fits your needs and is well priced. So, find a good agent to work with, make sure you are pre-approved with a creditable lender, and when you see that well priced property…MAKE YOUR BEST OFFER!
If you'd like help navigating today's confusing real estate market in Southern New Hampshire or Northern Massachusetts, you can contact me at 603-490-5344.