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Are Foreclosures A Good Buy
Are foreclosures a good buy in today's market?
Having sold more foreclosure properties over the last decade than anyone in Central Oregon, I'm pretty comfortable diving into this one. Looking around at the available properties, it doesn't take long to realize that there are really only a handful of foreclosures/REO/Bank Owned properties currently on the market. A quick check of the local auction schedule further confirms that there just isn't much foreclosure activity in Central Oregon right now.
There's a belief with many consumers that foreclosures are a great deal and all other properties should be ignored in a quest for real estate bargains.
So...are foreclosures really a good deal right now? Let's examine the reality of REO in today's market.
High Prices - The banks hire appraisers and 3rd party agents to provide valuations of their houses prior to listing so they will value the property at current market value. The banks usually take the highest valuation they receive and then add something on top, especially Fannie Mae who notoriously overprices their homes. Generally speaking, appraisers aren't the best at determining what a home will actually sell for since they don't sell homes. What frequently happens is they tend to provide a high value on the pre-list REO properties. This gives the banks a false sense of hope on the price. I've seen many instances where we get a super high listing appraisal then when we actually sell the property to an end buyer, the appraisal for their loan comes in much lower.With less inventory on their books, the banks are taking more time to evaluate their prices and marketing strategies. They no longer need to dump properties like they did during the crash, which means that they can afford to sit on them until they sell. The market has been appreciating so they'd rather price too high than too low. In short, they aren't overly motivated sellers.
Hidden Repairs - Most of the REO properties we see in Central Oregon have been in some state of distress for several years, some as long as 10 years! With that length of time without routine maintenance and care, properties tend to have quite a few issues, some of them are easily seen like paint and flooring, while others like plumbing and foundation problems take a little more work to discover. If you currently own a home, think about how much money you spend annually keeping your home in good condition. Now think about not doing any of those regular maintenance items for 4-5 years and what that would do to your home. Definitely inspect before purchasing and anticipate deferred maintenance expenses.
Sold "As-Is" - Banks sell their properties in "as-is" condition so it's really buyer beware. Remember, the banks never lived in the property so they generally won't be disclosing any defects, leaving the buyers to figure things out for themselves. Because banks sell "as-is" they aren't under any obligation to repair either. If they do repair, they generally do the work as cheaply as possible, which usually causes problems later so buyer beware.
Buyer Demand - Thanks to HGTV and others, lots of amateur investors have entered the market thinking there's fortunes to be made flipping homes. With banks placing homes in MLS and running online auctions, everyone in the world has access to available properties, which creates demand. Combine that with low inventory, many foreclosures sell for far more than they're really worth when you factor in the repairs and risk.
In summary, most bank owned properties in this area just aren't great deals in today's market. Banks are doing well financially so they don't really need to liquidate the properties they own here as they know the market is appreciating. We have more buyers than sellers so foreclosures become targets for value shoppers who were taught that foreclosures represent value. Personally, I believe it's much easier to negotiate with a homeowner who may have some form of distress than an multi-billion dollar institution that doesn't really care about a little home in Central Oregon. If you have questions about foreclosures I'm happy to answer any questions.
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