I recently received a call from people wanting information about foreclosures. They told me they were considering moving, but only if they can get the best deal. Their children had grown and so they did not need as much space as they had. The jobs they have do not require being as centrally located as they currently are. Given the flexibility they have, led to them wanting to hunt for a bargain. They thought buying a foreclosure would provide the kind of discount they were dreaming about.
As much as I appreciate people wanting to get a bargain, the fact is “bargains” are often not what they appear to be.
Foreclosures, also known as REOs (Real Estate Owned by Banks), are properties taken back from homeowners who default on their mortgages. For some, this means they are no longer in a financial position to keep up with their monthly bills and for some, they just do not honor their commitments. The latter group, stay in the house as long as possible without paying their bills, literally living rent-free. Some of these people do the same thing when they rent, moving from one place to another. The first group means well, but due to a variety of life circumstances, they are just unable to generate enough money to pay their mortgages.
In either case, the banks now have properties they need to sell. They have already lost money by the time they take possession and want to minimize their losses.
As a result, they list the houses to sell at market value. In a buyers’ market, there is some leeway in negotiating a lower price. There are more houses for sale than there are buyers, thus giving buyers the advantage. We have been in a sustained sellers’ market for 7 years. In this market environment, there are not enough houses for sale to match the buyers’ needs. Therefore, those selling the houses have the advantage.
In fact, a skilled negotiator can save buyers money if circumstances are right. When one is making an offer on a house and there are not others also competing for that purchase, the agent has the opportunity to get some concessions for their buyers that reduce their costs. When there are multiple offers on a house, the dynamics change. The most attractive offer wins. People with larger down payments and better credit scores stand out. Sometimes it is not about cash. It might be conditions like how flexible buyers are about when to move. A professional, with experience in negotiating multiple offer situations, will guide the buyers to make the most attractive offer possible.
I digress, back to bank-owned properties. They are all about the numbers. Writing a letter telling your family’s story and how much you will enjoy raising your family in that house will fall on deaf ears. Usually, the banks will replace carpet and paint, so the house is neat and clean. They then sell them “as is”, meaning they will not negotiate a reduction if there need to be repairs made. The bottom line is they want the most they can get just like any other seller. There is no emotion in their transactions.
Another important factor when looking at foreclosures is the condition of the homes. Whether the previous owners deliberately didn’t pay their mortgage or genuinely couldn’t, the odds of these homes having been well maintained is not good.
Therefore, when buying a foreclosure, you can expect to face extra costs in repairing systems in the house that have been neglected. Depending on the house, repairs could be minor with more administration than money or they could be major, costing thousands and time before the house is fully livable.
There are people who think going to an auction is a good place to find a bargain. Once again, the bidding will start at market value since the banks are trying to minimize their losses. When buying an auctioned home, one needs to know what is a reasonable price to pay for a house and either be able to do the work themselves or have a reliable crew whose costs are a known factor. You are buying a house based on a description. You cannot inspect it before, so are gambling what costs will be involved in addition to the price you pay.
When looking for a home, it is important to have a professional help guide you through the process from the search all the way through the closing. Your agent can help you narrow your search based on a multitude of factors that are important to you. Like the people who are looking for a bargain, one must determine what the priorities are. If price is the driving factor, it is possible to find something that will meet your needs. In my experience, the home will not “check all the boxes” the buyers had envisioned.
Setting realistic priorities will lead to the best outcome.
Steve Markfeld has been a Realtor since 2004. He started his real estate career in the suburbs outside New York City with Prudential Douglas Elliman Real Estate. Steve continued his work after relocating to the Metro Atlanta area in 2009, joining Prudential Georgia Realty which later became Berkshire Hathaway HomeServices Georgia Properties.
The Great Recession hit NY in 2005, so a significant percentage of his time in the real estate business has been problem-solving for buyers and sellers during major crises.
Steve is well suited to the challenge, having been a mental health professional for 30 years prior to his entering the profession of real estate. He has acted as a consultant, navigating his clients through every human dilemma imaginable.
His integrity is unsurpassed. If you are seeking straightforward, accurate information, you can count on Steve Markfeld.