Thursday, April 3, 2008

Foreclosures & Short Sales - Part 2

Continuing the dicsussion on short sales & pre-foreclosures - why would the bank let you sell your home for less than you owe them? In the long run - they save money. Banks are in the business of lending money. Not managing real estate. As any agent who ever listed a bank owned property can tell you - the bureaucracy at a bank is nearly impossible to deal with. They make managing and selling a property harder. Despite what many people think - the bank does not want to keep your house. They want their money. And if they don't get it - they want to make sure the "asset" is protected and doesn't lose value.
As a Realtor, it isn't uncommon to look at a vacant house that is in the process of foreclosure - and it's trashed. Holes in walls, appliances all missing, garbage everywhere. The banks see this too - and it costs them money. So, again- why a short sale? Foreclosing on a house costs time and money. Months to complete the foreclosure process, attorney fees, lost interest on their money. Then, after they foreclose - property management fees, repair fees, utility fees, sales costs, etc. The list goes on. So if the bank can get a reasonable amount for the property - it just makes financial sense. That doesn't mean they will take "Any" offer. A lot of investors walk in with offers that are 50 cents on the dollar. My experience has been they don't take those offers. But every now and then they do - and tha'ts what investors are hoping for! But if the bank can get 75 cents on the dollar? 85 cents on the dollar? That's good for them.
So what does that mean for buyers? It means they have a chance of getting a home under market value. In a market where real estate prices are declining - they have a little cushion. It also brings a "perceived value" to the table. When buyers hear foreclosure- they automatically think they are getting a good deal. I always caution buyers that we still have to look at recent sales to determine if the property is a good price. Many times buyers will list pre-foreclosures for the amount they owe the bank. Many times - it is overpriced. So it's important to look at recent sales - I'm talking the last 3 to 6 months. Not a year ago - last year was a different market.
Tomorrow I will conclude this series as I talk about Foreclosed homes - or properties the bank has already taken back and is ready to sell.

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