Are Foreclosures Becoming Extinct?
I have been looking at foreclosures a lot lately. All the realtors who show me the properties tell me that the bank sets them at the normal market value rather than what is owed on the property. If nobody buys the place, then the bank will drop the price about 2 grand every month until someone buys. Also, the realtors tell me that short sales are basically extinct and rarely accept low ball offers. I know that realtors only watch out for one thing--their commission. But what is really going on? Do banks really not do short sales anymore? Should I keep on offering low offers to the banks or am I wasting my time? :-?
REOs are not a good way to invest unless you are in the poorest of real estate markets, then there is bank motivation
The trick is to get to them before the bank owns the property. After they do, a lot of properties are priced at FMV, though they will almost always take a discount to sell quickly...
Hey,
I think many people (including myself) have watched too many infocommercials and think that banks are willing to sell foreclosures for pennies on the dollar. They are not.
Gurus push the message that banks are screaming to get these houses off their books. They are not.
The myth is that banks are willing to take a hit on these houses just to be rid of them. They are not.
It has been my experience that banks WILL drop the price if you pay in cash (no finance clauses), take the house as is (no inspection clauses) and can close in less than a month.
I'm not surprised that Indiana is the foreclosure rate leader. I've found that local banks can be reasonable to deal with. Of course banks want to maximize what they get. It's their money. They're not going to give you something for nothing. They act as you would, if you had an inventory of homes... sometimes you need to move one.
You may get one at a lower than market price, due to such a situation. Or that you're willing to pay cash on the barrelhead. Make offers that make sense for you (not "make you a millionaire one deal" - but still make business sense). There are a lot of people working hard and making money in Southern Indiana. The key here is that they are busting their tail to renovate and add value. They are not expecting the bank or anyone else to make them rich on "sweetheart deals". Sometimes one comes along... cool - call it a bonus.
It's really supply and demand. The bnks are getting wiser in dealing with the REO issue. I can't blame them for that.
-Jeff
Quote:
On 2004-10-08 03:38, Bruce wrote:
I think many people (including myself) have watched too many infocommercials and think that banks are willing to sell foreclosures for pennies on the dollar. They are not.
Depends on the area. If they area and house warrents a discount, then they do.
Quote:
Gurus push the message that banks are screaming to get these houses off their books. They are not.
Actually, they are looking to get rid of them off their books. The reason is, if they have X funds on foreclosed homes, then they can't lend X funds to anybody else, before getting the property that is tying up those funds. Having too many foreclosed homes lower the banks quality rating. The Managers do NOT want to have that quality rating go down.
Quote:
The myth is that banks are willing to take a hit on these houses just to be rid of them. They are not.
Once again, the average foreclosure costs somewhere between $14,000 that the bank has to pay for. If the house does not warrant that amount (ie. highly leveraged) there is no way they can take that property back, foreclose on it and make a profit.
Quote:
It has been my experience that banks WILL drop the price if you pay in cash (no finance clauses), take the house as is (no inspection clauses) and can close in less than a month.
This money can be obtained through hard money loans OR straight out cash for the places.
If you are looking for forclosures, do you advertise for them? Or are you having the agent do all the work? My old boss is a real estate broker, he had some clients that were looking for forclosures( hud) and when he found good deals he.... took them. Then gave the clients junkers. So what I am saying are you doing anything to get deals?
" Also, the realtors tell me that short sales are basically extinct and rarely accept low ball offers."
Low-ball offers are not to confused with a short sale proposal. Low-balling is akin to throwing something against a wall and seeing what will stick... while a compelling short sale proposal is more comprehensive, and a skillfully written business proposal.
[addsig]
I think that many banks list their REOs with brokers now. In high foreclosure areas, you can still find some good deals particularly if there rehabs. I also agree that cash offers will get attention quickly.
I also think that your most interesting and profitable situations occur when dealing directly with an owner of a financially distressed property. This is because you can propose transactions that are more creative that require less cash and you are not running back and forth with counter-offers. You can negotiate through dialog.
Bruce, just because you've not been able to buy a foreclosure property from a bank, or do a short sale with a bank - does NOT mean they're not doable.
I've bought from banks, and I've done short sales with banks. It's doable.
Is it something to base an entire investment plan around? No. But to say banks don't sell at steep discounts is just being upset because you haven't done it.
Just my opinion.
RL
Quote:
On 2004-10-08 03:38, Bruce wrote:
Hey,
I think many people (including myself) have watched too many infocommercials and think that banks are willing to sell foreclosures for pennies on the dollar. They are not.
Gurus push the message that banks are screaming to get these houses off their books. They are not.
The myth is that banks are willing to take a hit on these houses just to be rid of them. They are not.
It has been my experience that banks WILL drop the price if you pay in cash (no finance clauses), take the house as is (no inspection clauses) and can close in less than a month.
:-o
Two points:
1. Most realtors sell at retail and hence you will not be able to use them when looking for deals. The mentality of most real estate agents is not akin to the mentality of the real estate investor.
2. If the house is owned by the bank, here's what happened. It was published in a lis pendis and all the local investors tried to buy it from the owner or short sale it from the bank. This did not work. Then it went to the auction where all the local courthouse sharks passed on the property for one of any number of reasons. Now it reverted back to the bank. If the investors didn't snatch it up in the first two stages, chances are that the property is not a good investment. I am sure that there are many cases where I am wrong, but I believe that generally you won't find good deals with REO's because of that. However, since the property is not such a great deal, you may be able to convince the bank (with the proper package) to give you a good deal just to get it off their books.
Just my 2 cents.
Sincerely,
Mario Costanz
I called banks to make an offer on their foreclosed homes a few times. And every person I spoke to, their words were: "We Sell our Foreclosures at Fair Market Value."
Should I keep trying to make offers?
Eddie, you should try showing them WHY they should sell to you under market value. Put together a package with a net sheet and tell them all the bad things about the house and all the bad things about the neighborhood and all the bad things about them holding on to a property that is going to take them forever to sell because of its bad condition, bad neighborhood, high crime rate, factory that just closed in town, natural disaster that happened near by. Get the picture? Don't tell them all that if it isn't true just make sure you emphasize all the bad points. Put it in writing and don't talk the dumb clerks that answer the phone. Find out who is in a decision making position and talk directly to that person if possible (and everything is possible). Good luck.
Short sales are done everyday. It does depend on the bank and on the area. One thing I have noticed is that you guys are going directly to the bank and wanting them to give you a deal on one of their foreclosures. That is the wrong approach unless you have a good relationship with a bank. I have been very successful in doing short sales with the bank during the preforeclosure process. I find a home, find out the lender and then go in with negotiations with the home owner and the bank. It does not always work but when it does it is very profitable.
In California last year, REOs sold for 99.5% of FMV. In areas like this (fast selling, appreciating), there is not motivation for the bank to sell at a large discount. You need to make good connections and have cash to get a good deal here.
Also, the 100% financing is killing the short sale. If the bank paid FMV or more at the trustee sale (foreclosure), they are not very willing to take a hit later. Note that a 80/20 second is different, since the 20% second is wiped off at the auction.
Even at the trustee sales, you may be paying close to FMV (Las Vegas was like that this spring/summer!).
Preforeclosues may offer the best profit potential, but require the most work. Foreclosures are next in the scale, and REOs last of the three.
I agree with Bruce. Short sales and bargains are a waste of time. I recommend you send these dead dogs to me. Let me deal with the headache of trying to make an impossible deal work. :-D