Purchasing a foreclosure, or a distressed property, seems to be what many are interested in currently. And, while there are many areas of the country where purchasing a home out of a foreclosure can be very lucrative, we really haven’t seen that phenomenon very often in Missoula, MT.
So, why the difference?
Generally speaking, when a property goes to sale on the Courthouse steps (and yes, it really does get sold on the physical steps of the Courthouse), a representative from the bank/lender will almost always bid the amount they are owed. It is usually at that point that the bidding stops, because the previous owner owed too much against the home. If they had owed little on the home, they would have, most likely, refinanced. After the banker/lender takes ownership of the home, they will usually hire a real estate agent to perform a comparative market analysis, suggest items that may need to be done to the home (such as make sure pipes don’t freeze over the winter, or empty out personal belongings the previous owners left behind, etc.) and then list the property on the MLS. It is true that the banks are not in the business of selling homes, and it is also true that they don’t want to hold them any longer than they have to. That being said, it is also true that they are in the business of regaining any losses they can.
In large communities where there are extremely high numbers of foreclosures within an area, this process is a little different. In situations like that, where there are few sales/market movement, the properties are sold for extreme discounts due to the overwhelming numbers of vacated homes. These tend to be the situations that are bought for “dirt cheap.”
With regard to short sales (which is usually the step before a foreclosure), the process may be a little bit different, but not a lot. When a property owner owes more against the property than the property is worth, and they are trying to sell it for less than is owed, it is generally referred to as a short sale. Banks/lenders are somewhat motivated to get these sales through, because they can save the additional expense of going through a foreclosure. The problem with these, as many of us have either heard or through personal experience, is that lenders are inundated with short sale requests and they have become very difficult to get through negotiations. Sometimes it is just a matter of not being able to speak with anyone who can actually make decisions with large lending companies, and other times it is just simply a result of too many requests and not enough manpower. No matter what the reason, people really tend to shy away from short sales when they are looking at homes. In addition, the amount that a lender may be willing to sell a property for varies with:
(1) the amount the previous borrower owed on the property;
(2) the listed price and how long it has been on the market with no offers;
(3) the amount of the BPO (“Broker’s Price Opinion”) on the property by an independent realtor; and
(4) numerous other factors that could never be listed and would probably vary with each transaction.
One of the lenders for one of the short sales I did actually went so far as to say that the amount they would negotiate was determined in part by how responsible of a borrower the Seller had been. In that regard, they said he had been “too responsible” in his past and that his credit was “too good” to grant a short sale. I guess the thing to remember with short sales is that they are very difficult, take a lot of patience for the Seller, Buyer, and all representatives involved. In the end, there is a likely outcome that the home will be purchased for close to market value.
In this market, most Sellers are expecting to negotiate some on price. As a Buyer, I think it is important to do your own research – make sure you believe the home fits within the more current neighborhood sales. If the listed price is higher than that amount – make an offer for what you think it is worth and see if there is a place you can come to agreement with the Seller. When I have asked for feedback on pricing on some of our listings, a common response I have received was “it is probably close enough to get an offer” or “get it down some so it will be close enough to get an offer.” And it does seem to be important. Money is tight for a lot of people right now, and with that comes an inherent “need” for people to get the best deal out there. There are a lot of homes on the market right now, and it is important to strategically place well with competition – on price and on condition. If that is not an option, due to the amount owed on the property, then the negotiations often turn to the lenders and banks in short sales, and if that doesn’t work, foreclosures.