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Old 01-11-2011, 11:19 AM
 
77 posts, read 131,395 times
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I was under the illusion that oft times, foreclosures could be a better deal than buying a house not in foreclosure. Of course, it comes with risks.

When we've seen foreclosures and talk to our agent, he pulls comps and usually says to start by bidding the asking price.

1. So really, if that is true, what is the difference between buying a house in foreclosure than buying a house not in foreclosure. Comps are pulled for each and a bid should be realistic for each.

2. Also, if a foreclosure goes for say $300k, does the buyer's agent make the same if the bid comes in and is accepted for $290k?

3. Is there any way to find out how much is owed on a foreclosure to the bank?

Thank you all in advance.
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Old 01-11-2011, 12:06 PM
 
Location: Lakewood Ranch, FL
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First, let's get our terms all on the same page. Some people use the term "foreclosure" to mean any property that is in the process of foreclosure (i.e. ranges from being a few months late to being sold at the courthouse and generally includes short sales) while others use the word to refer to a bank owned property aka REO (Real Estate Owned).
I think you are talking about REOs so let's deal with that. It is generally the case that a REO will sell at the bottom of the market range. Sometimes because of condition but mostly because the asset manager wants to get rid of it quickly. In my experience, REOs are usually subject to multiple or competitive offers--lowest priced properties usually get the most attention--so often the successful buyer will be slightly above the asking price. Do you have to do that? It depends on your area. If you are offering less than list and not getting the contract then, yeah, you might want to consider going above listing price. Your agent should be able to show you a MLS report of recent sales of REO properties showing the listing price and the selling price. That's a good place to start. The amount the bank is owed really won't matter. This is all about having the highest and best offer. Unless stated otherwise on the MLS, the commission is a percentage of the purchase price.
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Old 01-11-2011, 12:58 PM
 
77 posts, read 131,395 times
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bbronston:
Thanks very much for answer. According to the local tax database, both houses we've seen have been bank-owned (REO, based on your response). What we've seen from our agent for both REOs is not recent sales of REOs but comps in the area so we could see what the price per square foot is compared to the price per square foot of the house.

I also asked him, perhaps not clearly enough, how he gets paid and his response was from the bank and the selling price was irrelevant. This seemed a little odd to me as well as some other information he has told me. But what you are saying is that the commission is still based on selling price. If that is incorrect, please let me know.

I appreciate your concise and clear response. Thanks for your time.
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Old 01-11-2011, 03:11 PM
 
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An REO property is not always a good deal. Sometimes the condition is bad enough that the listing price isn't low enough when you consider what work needs to be put into it. Your agent can provide comps for the neighborhood and help you to determine the current market value before you make an offer. Iv' bought several REO's as investments and most of the things I go look at I don't end up making an offer on because really they aren't that great of a deal. I will watch things I'm interested in and wait for the price to come down.

1)How buying an REO is different.

The seller(a bank) knows absolutely nothing about the property or it's history.

They have their own "as is" addendum that is written to their advantage and you have to sign it to buy.

The price negotiations can be a little strange. I once had a bank reject an offer for $162,000, only to sell it to me two weeks later for $155,000.

It is very rare that they will agree to do any repairs. Sometimes if something is very significant you can negotiate a price reduction. I once did this for a septic issue.

2) An agents commission is usually a percentage of the sales price and paid on the sellers end.

3) It really doesn't matter what the loss is the bank is taking. The house is worth what it is worth. It is best to only concern yourself with that and getting a good deal as far as the value of the house.
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Old 01-11-2011, 03:17 PM
 
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You asked about bidding. I have found that most of the time the bank won't come down a lot on the price, so I would keep that in mind. It is impossible for us here to give you advice about bidding because every property is different. Bidding listing price may not be a bad idea if it is really a great deal at that price. it just all depends. Like I mentioned before, I usually watch things and wait rather than try to low ball.
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Old 01-11-2011, 09:31 PM
 
Location: Snellville, GA
468 posts, read 1,374,031 times
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Sometimes a bank will work with an individual offer (one at the time) - unless there's more than one at the time - then they may call for 'highest and best'. At that point, it's anyone's guess. I've seen homes go for less that listed price, and seen them go for more than listed price.

I've seen homes that need a LOT of TLC and some that are move-in ready. You and your agent need to do your homework and look at the current area and trends.

Agents get paid (usually) based on the sales price of the home, unless it's a flat rate thing. So, yes, the sales price would matter. A good buyers agent protects the interests of their client - i.e. not going top dollar right off the bat just to 'line their own pockets'. With that being said, however, some homes require offers of list price - it just all depends.
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Old 01-12-2011, 07:08 AM
 
Location: Gilbert - Val Vista Lakes
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Your agent should do a comparable market analysis and arrive at a current price range value of the property based on many factors, including location, condition, time on market, local market conditions, etc.

Then you make your offer based on that information, and how badly you want the house. You have to determine if you want to make your offer at list price, below list price, or above price, based on the information available.

The agent usually gets paid a percentage of the purchase price. The agent must put the clients interest above his own. Therefore, the agent should work to get you the best price, notwithstanding that s/he will make a few dollars less by getting you a lower price.

If you're buying a $200,000 short sale, and the commission to your agent is 2.5%, that's $5,000.
If the agent can negotiate the price to $185,000 the commission is $4,625. That's only $375 less that s/he earns for saving you $15,000. It's a very small price to pay for the good will that will be earned by getting you a good deal.

In the long run, the more money the agent can save you, the more you will appreciate their work and you will refer him/her to friends. Referrals from satisfied clients are like gold.

Probably 99% of agents understand this and will always work to get you the best price, and not even think about their commission until the escrow has closed.

On a recent transaction of mine, a regular sale (not a short sale or bank owned) the home was listed at $210k. It was a good deal at that price; had only been on the market for 119 days and my client wanted to offer full price. I recommended, and he agreed, to offer $200k. The offer was accepted right away.

During inspection there were some repairs that my buyer wanted done and they amounted to $6,000 from a contractor quote. The repairs were not mandatory and the seller could have refused.

We asked for the full $6k, and the seller said he would pay for $1k of the repairs. My buyer said since he had gotten a good deal at $200k he was willing to forego the $6k. But I felt we could do a little better. So we negotiated a little more and finally agreed on $3k. This was done as a reduction in price from 200k to $197k.

That was $13,000 that I saved my client. That meant $390 less commission to me. However, my job is to get the best deal for my client, and I did. She was extremely happy at the outcome, and will certainly refer me to her friends.
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Old 01-12-2011, 12:46 PM
 
3,398 posts, read 5,082,565 times
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Quote:
Originally Posted by peachstatehomegal View Post
Sometimes a bank will work with an individual offer (one at the time) - unless there's more than one at the time - then they may call for 'highest and best'. At that point, it's anyone's guess. I've seen homes go for less that listed price, and seen them go for more than listed price.

I've seen homes that need a LOT of TLC and some that are move-in ready. You and your agent need to do your homework and look at the current area and trends.

Agents get paid (usually) based on the sales price of the home, unless it's a flat rate thing. So, yes, the sales price would matter. A good buyers agent protects the interests of their client - i.e. not going top dollar right off the bat just to 'line their own pockets'. With that being said, however, some homes require offers of list price - it just all depends.
Just because they ask for highest and best doesn't mean there is multiple offers. I have caught one agency I know of lying about this. There may be more than one or there may not.
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Old 01-12-2011, 05:20 PM
 
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Default Foreclosure or Deed in Lieu? TAX IMPLICATIONS??

We live in California and below is a timeline showing properties we purchased and the situation we are in today:
2002: Purchased new home as primary residence (House #1) for $235K; put 20% down, and paid loan down over the years to about $180K
2005: Refinanced House #1 and took out $200K; new loan amount became $380K (one loan, no second); we used the $200K to buy a 5-acre ag property all cash
2009: Purchased another home (House #2) for $380K and rented it out; put 20% down, new loan amount approximately $300K
2010: Purchased another home (House #3) for $350K and moved in to it; put 20% down, new loan amount approximately $280K

After moving out in March 2010, we rented out House #1 for $1500 per month. The payment is $2700 per month. We want to walk away from it purely as a business decision since the value of the home is only about $180K and the loan is $380K and we would be shelling out $1200 per month to cover the mortgage payment after receiving rent.

We tried to short-sell... we got an offer for $200K and the bank (BofA) said no. We decided to stop making payments (though kept collecting rent) for the past 7 months. We received a Notice of Default letter on 12/20/2010. It said the house sale date will be 3 months later, sometime in March 2011.

Questions:
1. Should we let it foreclose or try to do a deed in lieu of foreclosure?
2. Which of the above options is better from a tax perspective?
3. Can the bank from House #1 come after us (meaning, our other properties or judgments against us) once we foreclose?
4. Would we qualify for the mortgage debt relief act? (thereby not being required to pay back the bank or the IRS for the 1099-c or 1099-a, depending what we receive later from the bank)
5. After foreclosing, if the bank sells the house for about $180K and our loan was $380K, are we responsible for reporting the difference of $200K as taxable income?
6. Since we lived in House #1 for 8 out of the last 9 years, would it still qualify for our primary residence? (which may be a factor for question #5)
7. Since we refinanced in 2005 and took money out for purchasing another property in 2005, will this disqualify us from the mortgage debt relief act?

I am not concerned about our credit, but my only two concerns are 1. The bank coming after our other assets after foreclosing, and 2. The IRS hitting us with a huge income tax bill (it would be well over $100,000 I'm sure).

Given our situation, I don't expect anyone to feel "bad" for us, but I'm just trying to get advice on making the best business decision. Truthfully, my wife and I worked hard to buy these properties, and are just trying to make the best choice given our circumstance. I've talked to 2 different lawyers and got 2 different answers... one saying we'll be fine and will not have to pay the bank or the tax upon foreclosure (as many are doing now)... and the other says we will have to pay the tax and the bank can still come after us. Being an internet opinion page, I don't expect accountable legal advice, just want to get other perspectives if you want to comment. Thanks.
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Old 01-12-2011, 05:30 PM
 
Location: Snellville, GA
468 posts, read 1,374,031 times
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Noncontingencies, wouldn't it be nice to be able to prove this? I always wonder if there really are more than one offer in - I kept thinking it was 'just my luck'!
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