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East Bay Real Estate Focus

Providing Definitive Information for the East Bay Area

By Carl Medford | Agent in Fremont, CA

When Is The Price Not The Price? 4 Key Things To Know

When it’s a price from RealtyTrac.

I get LOTS of calls and emails about this and, if you visit Trulia Voices with any regularity, you’ll have seen many questions pertaining to this as well.

Bottom line: someone wants to know how they can get:

·       A 1,869 sq. ft. home in San Ramon for $236,560.00. Or ...

·       A Castro Valley town house for $63,560.00. Or ...

·       A 2,645 sq. ft. home in Fremont’s Mission San Jose area for the deal of the century ... just $562,000.00!Frustrated

How do they EVER come up with prices like that?

After all, everyone knows that the going price for homes like these is SUBSTANTIALLY more. Hundreds of thousands more, in most cases. Because ... those prices are posted by RealtyTrac.

Did I mention that this is VERY frustrating?

Not just for me, but for the hundreds of potential home buyers who see the prices online and hope that maybe, just MAYBE they’ve finally found a bargain they can actually afford.

Time to go to school, so sharpen your pencils and hunker down for some ‘larnin.’

When homeowners can no longer make their payments, they eventually get a Notice of Default from the bank. This notice is recorded in the county’s public records. If there is more than one loan, a notice will be issued for each loan that’s in default.

Companies such as RealtyTrac go thought the county records to find Notices of Default. They compile the data and then sell it to subscribers. To get you to subscribe to their service, they post Notice of Default information on sites such as Trulia.com.

WHEN SOMETHING LOOKS TOO GOOD TO BE TRUE... (do I really need to say the rest?)

When you see data coming from companies such as RealtyTrac, it will be one of two numbers. Read the fine print VERY carefully to see which number it is:

1.     A Notice of Default. 

This is called a Pre-Foreclosure Notice and will be the price of ONE of the existing loans on the house. And guess what ... they won’t give you the address ‘“ they want you to subscribe. For a fee.

IT IS NOT THE PURCHASE PRICE FOR THE PROPERTY.

2.     A Notice of Trustee’s Sale. 

It will be the amount of the FIRST mortgage. And guess what ... they won’t give you the address - they want you to subscribe. For a fee.

IT IS NOT THE AMOUNT FOR WHICH YOU CAN PURCHASE THE PROPERTY.

Trulia.com will post a third number - this is the Price of Completed Sale. This is usually the amount of the FIRST mortgage and is the amount the bank actually paid the trustee to buy back their own property at the Trustee’s Sale. You finally get the address - because now it’s public knowledge in the county records. And it's free! However ...

IT'S STILL NOT THE AMOUNT FOR WHICH YOU CAN PURCHASE THE PROPERTY.

Did I mention this is VERY frustrating?

The process is as follows:

1.     Notice of Trustee’s Sale. 

If, after receiving a Notice of Default, the owners of a property allow their home to be foreclosed, then a Notice of Trustee’s Sale gets posted by the trustee. This is usually the trustee holding the primary note. In California, it’s not the bank that forecloses, it’s the Trustee. RealtyTrac posts the amount of every loan in default.

2.     Trustee’s Sale. 

Once the Trustee decides to foreclose, it goes to a Trustee’s Sale. This sale is held on the courthouse steps in the applicable county. Usually, the bank buys its’ own property from the trustee for the full amount owed on the primary mortgage. In the current market, the price the bank pays to obtain the property is often more than market value. Any subsequent mortgage holders get nothing. The ‘courthouse steps is typically not a good place for a potential end-user to buy the property ‘“ its geared towards investors who buy many properties at wholesale prices. In fact, it can be a downright unfriendly environment if you don’t know how the game is played.

3.     Becoming an REO. 

Once the bank has purchased the home, it is now foreclosed and is called an REO (Real Estate Owned). The bank will then usually list the property at or near full market value and place it on the local MLS.

4.     Finally on the Market. 

At this point, it shows up on the MLS as an REO and your Realtor can show it to you. Just because the numbers posted by ReatlyTrac seem low, it does not mean the house will sell for that amount on the open market. Once the bank purchases the home at the Trustee’s Sale and it’s now an REO, the bank tries to get as much for it as possible. The price usually goes back up to at or very near market price. 

When it comes to RealtyTrac, READ THE FINE PRINT!

And if you want a great deal on an REO, go find a top-notch Realtor with a lot of REO experience under their belt. They’ll show you how to get the best property at the best price and for the best terms.

And that’s really want you want, anyway.

Comments

By Joan Patterson-951-204-1864,  Wed Dec 17 2008, 04:18
Carl,
I could not agree with you more. I have been VERY frustrated with all of the above as well! I love your post and will refer to it quite often with buyers! The general public does not understand and they do think they can get a steal. You were right to put, "Once the bank purchases the home at the Trustee's Sale and it's not an REO, the bank tryies to get as much for it as possible. The price usually goes back up to at or very near market price."
Thanks for posting this. It was just excellent! Joan
By Diane Kawell,  Mon Dec 22 2008, 22:08
Carl, this is sooo good. Put longer hair on that guy screaming at the computer screen, color it blonde, and it's me! Realty Trac has been making me nuts with their info updates, and I wish trulia could just ditch them! (Is that ok to say?) Ditch them for all the trouble and frustration they cause, because Joan is right - the general public, heck, even the general real estate agents, do not understand!
By Carl Medford,  Tue Dec 23 2008, 14:27
Couldn't agree more!! Thanks for the input.
By Norm,  Tue Dec 23 2008, 22:39
Good blog. I fail to understand the significance of an REO home if it is listed at market value. What is special about the seller (owner) being a bank rather than a non-bank? And therefore why the need for an REO specialist?
By Carl Medford,  Wed Dec 24 2008, 07:27
Norm:

In most markets, REOs have been the predominant factor driving the market down. There are a number of reasons:

1. They may come on the market at or close to market price, but remember that the “market price” is for a property being sold “as-is.” Since the banks are doing nothing to improve these properties, their prices are actually lower than nice, owner occupied homes that have been well maintained, etc. In order for owner occupied homes to compete, they have to lower their prices to REO levels, thus driving REO prices even lower. Factor in short sales, which are typically artificially low to begin with, and you have a downward spiral.

2. Because of the sheer volume of REOs, they have softened the markets everywhere. They are flooding many markets and are having the same effect as a wave of low-cost products come in from offshore manufacturing outlets. It’s basic supply and demand economics at work. If a certain area is oversaturated with product, prices will plummet across the board until the market can get some traction.

3. REOs are very appealing to investors and buyers who don’t mind fixing things up to get a great deal. When a price is set for an REO, the bank takes into account any damage or issues the house may have. They then subtract the retail value of these issues off the price. A smart buyer can get many of these items fixed at wholesale prices or put sweat equity into the home for next to nothing.

There are a number of differences between a bank selling a home and a private individual.

1. A bank has no emotional attachment to a property – they want it off their books in 30 days and will usually drop the price until it’s gone. Private owners have a totally different set of criteria: they have their lives invested in the home, they may have purchased in a higher market and have no equity left to bargain with, it might be their retirement nest egg and so on. They have a very difficult time dropping the price to stay competitive.

2. REOs are sold “as-is.” The banks do not care if someone invested thousands in a new something-something and are therefore not interested in getting the money back out. Not so with private homeowners – they add up every penny they’ve spent and assume their house is now worth that much more.

3. The bank has thousands of homes to sell – private parties typically have one. It becomes an issue of economies of scale.

I’m not sure what you mean by an REO specialist – I’m assuming you are referring to a Realtor who does a number of REO transactions.

As an example, REOs are VERY different than normal homes to list – the banks want things done their way, which includes special forms, etc. There is a lot of up-front work doing BPOs, securing the property and property prep which may even include removing the occupants.

If representing buyers, REOs are also different for a number of reasons: contingency time periods are much shorter, all negotiation must be done up front, properties are purchased “as-is”, every bank uses their own unique forms and so on. Some banks want you to be pre-approved with THEIR people. Banks typically counter via email, and the entire negotiation process can actually be much quicker than for an ordinary home. In addition, banks often want a 21 day close, and will charge you a per-diem of $100.00 a day for every day you go past the close of escrow. It’s a good idea to use an agent who knows all of these variables and is comfortable with all of the differences.
By George,  Fri Jan 2 2009, 07:55
If this is the case with RealtyTrac, why doesn't Trulia post disclaimers or something?
By Carl Medford,  Fri Jan 2 2009, 08:37
It would be nice if they did - you could contact Trulia directly and suggest it to them. I'm guessing RealtyTrac pays for their exposure.
By Tony Abad,  Sun Jan 4 2009, 07:02
Good information, well written and entertaining.
TA
By Scott Godzyk,  Sun Jan 4 2009, 07:07
Very well written.... Lately i answer more questions about realty trac listings than anything else. I think explaing what the terms are will help buyers spot a pre-foreclosure or notice of default over an actual house for sale. I do question why the post notices of default in the for sale section of their site. I have posted a link on my site that gives people 7 free days of they want to see what realty trac is all about. Thanks for the great writing Carl.
By TC,  Tue May 18 2010, 09:39
Thanks Carl! That is a great concise explanation.
By Carl Medford,  Tue May 18 2010, 18:24
@Tony:

Thanks!

@Scott:

It's amazing HOW MANY questions are still being asked! Thanks for your comments.

@TC:

Thanks – and I think Trulia needs the revenue – it’s frustrating, but I think RealtyTrac ads will be around for a long time to come!
By Susan Haughton,  Tue May 18 2010, 19:57
Just stumbled on this tonight and saw it was still being commented on, so I thought I would jump in. GREAT post, thanks for the concise information that will be very helpful to a number of people, I am sure.

Ref: working with foreclosures. As I tell clients, buying a foreclosure is NOT buying a house "on sale" - this isn't Wal Mart discounting the same product...it's a different animal and it's imperative the agent know how banks work if they seriously want their clients to be successful in buying REOs.
By Courtney Cooper,  Tue May 18 2010, 20:54
It is so frustrating to the consumer! In addition, there is so much info flying back and forth and changing all the time, too!

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