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Old 03-11-2009, 04:34 PM
 
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We hear alot these days about banks and other financial institutions having quite an inventory of foreclosed properties and how "hard" it is for them to unload them, and how the banks have become real estate agents overnight without having neither the trained personnel, nor the knowledge of the real estate market (in a recession economy on top of that.

However, I quite often see properties owned by banks up for sale at WAY OFF higher prices compared to the Tax Assessor's Office value. It's a very well known fact that the assessed value may be over-estimated from the get-go to bring in more tax money, but sometimes the banks set an unrealistically UPWARDS and OVER 20% higher prices on their properties. It is especially true with the newer properties (0-10yr) - I mean how much , say, a brand-new/2yr old house could have appreciated in the past years?!

Now there, it's either the TAO that missed on the opportunity to appraise these properties correctly, thus all this time losing tax money, or the banks (however "inexperienced" they say selling real estate they are ) are nuts and go fishing for unassuming buyers, all the while complaining about the situation, and the costs associated with the upkeep.

The reverse is also true: homes sold at a lower price than the county's assesed value (usually dumps - in the $0-$170k).

I do not see the banks motivated to sell, therefore I am not motivated to buy.

What gives?
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Old 03-11-2009, 06:46 PM
 
Location: Fly-over country.
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i think the 150-250K market isn't hurting much around here

i think over 250, up to 350 was over built and they are hanging on to inventory hoping BRAC will save them (????)

there's got to be a trigger for them to cut the price and move the house at a loss, when they it that trigger, they'll drop
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Old 03-11-2009, 09:04 PM
 
Location: Madison, Alabama
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The lenders typically hire a Realtor to do what is called a "BPO", Brokers Price Opinion on the home. The banks I have represented didn't take the Tax assessment into consideration, that I am aware of. They are (in my case) more interested in what the comparable sales are in that given area/neighborhood, and the condition. The home must appraise out if the new buyer is getting a loan, so they need to price accordingly.

I have seen several great deals in the REO market lately. Also, the longer they sit, the more negotiable they become, typically.

Here is a great site for Questions and Answers: ForeclosuresUS.com: Frequently Asked Questions About Buying Foreclosures

There have been some great deals on REO's lately. I sold a great home in Madison for $86 a foot last week...4800 square feet. The REO company is even installing all new carpet and repainting the entire home. That was a great buy.
There are deals out there...when you DO find a deal however, you need to be ready to act on it.
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Old 03-11-2009, 09:15 PM
 
Location: Madison, Alabama
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A few things you can do when you find a foreclosure: Have your agent pull the sales history of the home.

Find out the dollar amount of loans that were on the property. This will give you a good idea of what the banks would "like to recoup"...in a perfect world.

Have your agent pull the last 3 months sales for the area/neighborhood. Compare actives and pendings as well.

Many REO companies use the same company to list all of their properties. Have your agent check their sales history of solds...break it down to list vs. sale price. This will give you a good idea of how that particular lender will negotiate, typically.
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Old 03-12-2009, 09:53 AM
 
1,351 posts, read 3,124,742 times
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Quote:
Originally Posted by Elizabeth_G View Post
I sold a great home in Madison for $86 a foot last week...4800 square feet.
I, personally, don't look that much at the price per sqft. Sure, is would be nice to get $75 a foot house. But I rather look at what I need (space-wise) and can afford (mortgage AND upkeep, utilities). For example, one would think I might go for 2800sqft*$80=$224k, instead of a 2200sqft*$100=$220k. I choose the latter, because that's all I need.

My common sense tells me that a medium size house without wasted space (2000-2500sqft) always (re)sells better and quicker than a larger one. With a large house there so much up you can go price wise. Sure, one can ask for the moon and stars, will they get it? ... Would you buy the 200% markup jewelry just because it's 20% off, 50% off? No, I didn't think so..

Hsv/Madison may not be a typical market in that respect because of the bail-out HIGH HOPES that people (re-sellers), builders, lenders have due to BRAC people coming and throwing money at them.

I do think we are experiencing a real estate bubble here (or these people are living in one). Let's not forget the BRAC employees may have a $400-$600K-worth home up north, but that's probably mortgaged for the most part. How many of them have the house paid-off?, so they can take their bags of money after selling and drop them on a similar size house here?

We are going thru this crisis now, people may re-think their lifestyle and spending habits...and I can go on forever on why I do think RE market here is out of touch with reality. Too bad my money won't help the "rebuilding" the economy effort.

Thanks for reading my rant.

And thanks Elizabeth for your informative posts.
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Old 03-12-2009, 10:20 AM
 
6,241 posts, read 9,909,604 times
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Quote:
Originally Posted by friday13 View Post
I rather look at what I need (space-wise) and can afford (mortgage AND upkeep, utilities). For example, one would think I might go for 2800sqft*$80=$224k, instead of a 2200sqft*$100=$220k. I choose the latter, because that's all I need.
I think it is always a good idea to buy a house that you need & be realistic with your budget on what you want to afford, even if you can afford a higher price, rather than get carry away and wanting all that "extra"s.

Just couple of additional comments on this topic in general. This stuff was what I learned back west, so the specifics maybe different here.

I would differentiate between "short sale" and "forclosure" properties. Realtors can go into the finer details of the differences between the two. A "short sale" is basically a pre-forclosure, but title of the house may not be "clean" (have other liens hold against it). Since you're most likely making the offer to buy the property "as is", these liens don't show up until the title search came back. The bank may not be willing to pay for those liens and if you buy the house; you may end up paying for additional $ just to get those liens off the title of house.

As to why do banks sometime list these properties at much higher above the "market value"? The people at banks handling these properties are salaried employees. As such, they have to show to bank management that

1) they are making effort to get as high dollar for the property as possible, and
2) they have little incentive to see these properties get unloaded at a fast pace.

It is only when the properties sit on the market for 3~6 months, and they worry that management may think they're not doing their jobs, then they will lower the price. Repeat this process once every 3 months or so. So you can see it could be fustrating when dealing with banks on forclosed properties.

In a downward housing market, banks/ private party "re-sells" are always in denial on what their properties are worth, so they always want to hold on to as high of price as possible. I personally find it more straight forward when I buy from a builder. Builders are business people and have no emotional attachment to the property. They want to move the inventory, thereby more willing to negotiate on either the price, or upgrade options, or both. Just my experience.
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Old 03-12-2009, 12:58 PM
 
1,351 posts, read 3,124,742 times
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To my point above... average BRAC employee salary = $80,000 !! (slide 9). Sure as hell, this salary cannot sustain a $300-$500k mcmansion mortgage (even just a part of it, provided they have some equity up north), and raising few kids on top of that or a spouse that gives up a job there.

So builders/sellers should contain their overflowing excitement and scale back on size/prices, and maybe then will see the market move out of the slump. Until then, I wait and see.

sources
Tennessee Valley BRAC: Relocation information: Housing, Education, Quality of Life, Huntsville, BRAC, Redstone, Tennessee Valley, Madison County, Alabama, AMCOM, MDA, SMDC (BrAC to the Future presentation)


HB2HSV - very good points - my thinking exactly: how a brand-new property was sold $250k by the builder, and a year later the REO is pushing it to $300k+. Holy macaroni, that's 20% "appreciation"...ahem, greed. HSV is not CA, FL and look what happened to those reckless markets now.
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Old 03-12-2009, 02:55 PM
 
Location: Hampton Cove, AL
692 posts, read 1,375,031 times
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Quote:
Originally Posted by friday13 View Post
To my point above... average BRAC employee salary = $80,000 !! (slide 9). Sure as hell, this salary cannot sustain a $300-$500k mcmansion mortgage (even just a part of it, provided they have some equity up north), and raising few kids on top of that or a spouse that gives up a job there.
Also keep in mind that in their quick sales, most people have lost much of their equity and noone has the $600-800K to purchase a home anymore. Homes here in Chicago that were selling for $500K 2 years ago are now going for $250 and under. Imagine the transferees that bought at $500 and now have to start over.....

Things may have changed, but people have been getting loans for much more for a long time. We were always told that the maximum you can borrow is 2.5 times your income...ie $100K income, you buy $250K + down payment. No one seems to follow this anymore, or even know about the principle.

Chris went on interviews in a variety of cities(CA-LA and SDiego, NYC, OH, NC,etc etc) and it is always my job to determine what salary is reasonable and what would be worth the opportunity, etc, etc. One of the biggest things to look at is will your salary buy a house at your employment level(not just what others are being paid)? For example, if they offer you the job of VP, you better be able to afford a "VP home," not a shack with the salary they offer....in my research I discovered most cities had median family incomes of $40-$60K with homes that were $300K + What happened to the rules of lending? This is why we are in this mess. People think they deserve more than they can afford.

Quote:
Originally Posted by friday13 View Post
HB2HSV - very good points - my thinking exactly: how a brand-new property was sold $250k by the builder, and a year later the REO is pushing it to $300k+. Holy macaroni, that's 20% "appreciation"...ahem, greed. HSV is not CA, FL and look what happened to those reckless markets now.
OK here is another place that many things are at work(did I mention that I recruited for WaMu in CA for a bit?). The bank lends you $250K for a home(because they are idiots and you think you deserve the home with granite counters and hardwood floors when you are 20 years old working as a bank teller making $8/hour), now you default, you refuse to leave because you are "mad at the bank for overlending,"(remember it is all Wall St's fault) the bank now has to get a judgement to get you out and go through an expensive eviction process, they get in the house and realize that when you left you took all the appliances, light fixtures, and anything else that wasn't nailed down.

Now the bank's "expenses" are $250K loan, $10K eviction/tax burden/lost income(for the months you wouldn't leave), $50K repairs. They only make the repairs that they have to, if they didn't make the $50K in repairs, the home would sell for $100K less, so it is a "good investment"....well at least better than that loan they made

While it is not your fault that the bank made a bad loan, most times they start where their expenses are and move on down from there, with each reduction a further loss. Think about it, the people who are having their homes foreclosed on aren't the people with $100K in equity.

Personally, I would never buy a foreclosure-not even years later, people *can be* brutal when they are evicted. Many years ago my uncle purchased a forclosure because it was a great deal, he did his own inspection, hired an outside inspector-everything right....he got into the home, turned on the utilities, started running water to get it through the pipes only to find out within 15 minutes that someone had poured powdered cement down the pipes. He had to replace all of the pipes in addition to all the cosmetic things he had known about(ripped out carpet, missing appliances), the house ended up being a money pit and he was so happy to be rid of it after it was fixed...so it is definately buyer beware and an inspector can't find everything, no matter who they are. IF you are handy and can do most any repair yourself, then it might not be a bad deal, but for the average consumer, it isn't a good idea.
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Old 03-12-2009, 03:32 PM
 
216 posts, read 531,928 times
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Quote:
Originally Posted by HB2HSV View Post
I think it is always a good idea to buy a house that you need & be realistic with your budget on what you want to afford, even if you can afford a higher price, rather than get carry away and wanting all that "extra"s.

Just couple of additional comments on this topic in general. This stuff was what I learned back west, so the specifics maybe different here.

I would differentiate between "short sale" and "forclosure" properties. Realtors can go into the finer details of the differences between the two. A "short sale" is basically a pre-forclosure, but title of the house may not be "clean" (have other liens hold against it). Since you're most likely making the offer to buy the property "as is", these liens don't show up until the title search came back. The bank may not be willing to pay for those liens and if you buy the house; you may end up paying for additional $ just to get those liens off the title of house.

As to why do banks sometime list these properties at much higher above the "market value"? The people at banks handling these properties are salaried employees. As such, they have to show to bank management that

1) they are making effort to get as high dollar for the property as possible, and
2) they have little incentive to see these properties get unloaded at a fast pace.

It is only when the properties sit on the market for 3~6 months, and they worry that management may think they're not doing their jobs, then they will lower the price. Repeat this process once every 3 months or so. So you can see it could be fustrating when dealing with banks on forclosed properties.

In a downward housing market, banks/ private party "re-sells" are always in denial on what their properties are worth, so they always want to hold on to as high of price as possible. I personally find it more straight forward when I buy from a builder. Builders are business people and have no emotional attachment to the property. They want to move the inventory, thereby more willing to negotiate on either the price, or upgrade options, or both. Just my experience.
Clarifying between short sale/foreclosures...

A short sale is where the buyer is in jeopardy of default and the bank/mortgage holder agrees to take less than the mortgage amount for the house. The property may or may not have title issues, that is not what deems a house a short sale. The seller cannot walk away with one penny from the deal. Short sales are not always, and are rarely around here, as-is no contingency sales. The seller may refuse to do repairs, but still allow you to do an inspection to see what you are getting into. I have sold several foreclosures as well as done a couple of short sales, and we always have done home inspections and gotten repairs done, even by banks. Now, VA foreclosures and HUD foreclosures are different in the respect that they have bid periods and the sales are as-is...you have to do any home inspections prior to submitting your bid, and just for informative purposes. They have simultaneaous bid periods during which they collect bids and when its over, pick the one they want. The agents who write these offers also stipulate the commissions in the offer they will be paid (most state up to 5%), so that is also a part of the consideration. Also they agents have to be HUD approved agents. The homes are not on lockboxes, we actually have a HUD key that will open any HUD foreclosed property. They will not make repairs (although you can roll in amounts to the offer with HUD owned properties for repair allowances).
The benefits of short sales is there is no right of redemption period. The downfall is that it can take a long time, so you have to have patience. Short sales are not good options for those who need to be in a home in a specified period of time, because they can take as little as a month and a half up or as long as 6 (had this happen last year). Also, the buyer runs risk of loosing rate locks so that can be an uncertianty. See, behind the mortgage banks there are also investors who hold these properties, so it can take a while to get approval filtered through the bank to the individual who actually will take the hit. But to an investor or bank, a short sale is much better and the investor/bank will take less of a hit than if the property actually forecloses. So short sales can be an appealing option.
As far as title is concerned, if the buyer is obtaining a mortgage then title work is done prior to closing so any liens are known and the lender will require clean title. Also, we have also stipulated in every foreclosure/short sale that a lien waiver be signed at closing. If any liens happen to slip through the process (which often times they do not) the title insurance that is obtained and required by the lender at closing (also stipulated in our contract that simultaneous binder is issued at closing...for both lender and owner) then title insurance will cover any such unknown liens that have been or could be filed against the property.
So, in a nutshell, I wouldn't be afraid of foreclosures or short sales...and knowing how to handle the contract can prevent any unseens from happening after closing.

One very important item that you must research when considering a foreclosure is an indemity bond. Fannie/Freddie automatically indemnify the property, but if it was a conventional mortgage, you (the buyer) could end up having to pay for an indemity bond (required by the lender). This will happen if the sales price is higher than the foreclosed bid price, which it more than likely is. Depending on the differential (they are priced per thousand) you could be looking at a couple thousand extra at closing that you did not expect. Also, find out the foreclose date...the previous owner will have 1 year to redeam the property from that date, unless they had to be legally evicted from the property (then they waive their rights of redemption).

The banks always will have addendums that your agent needs to get PRIOR to submitting an offer. There is always one that basically states the bank has never occupied the house nor can attest to the condition or any other verifiable facts about the property.

Now, if you just go down to the courthouse and buy one off the steps with a big wad of cash at the actual foreclosure.....that is a different story. You could be looking at title issues and such and it will be your responsibility to clear the title.

If you are considering a foreclosure/short sale, Bo Harrison is an attorney in the area who specializes in them...he knows all the legal ins and outs and has helped many of my clients with questions/concerns that they have. He knows more about foreclosures than the average real estate attorney. Also, Mike Brodowski is also very well versed in foreclosures. I always recommend clients speak to an attorney when considering a foreclosure or short sale.

Last edited by madisonmamma; 03-12-2009 at 03:44 PM..
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Old 03-12-2009, 04:49 PM
 
Location: North Alabama
1,217 posts, read 2,129,153 times
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Question More help, please

In what situations will the "...sales price...[be]...higher than the foreclosed bid price...."? What is the difference between a "sales price" and a "foreclosed bid price"? I can't get my head around this part of the post. I can understand an indemnity bond requirement if the new mortgage amount is higher than the foreclosed bid price due to needed repairs, legal expenses, etc., and the lender wants protection against those repairs being followed through on. Otherwise,....? An illustrative example would help me understand this better.
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