Home Buying in Colleyville>Question Details

Dennis LaVer…, Real Estate Pro in Southlake, TX

Are foreclosures overrated?

Asked by Dennis LaVergne, Southlake, TX Fri Oct 26, 2012

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Maria Cipollone’s answer
Buying Foreclosures is normally not surprinsingly a desaster. If you are buying cash, you are ok, but if you are trying to finance a foreclosure is almost impossible. Firstable, It is not going to pass the inspection, is always too much damaged to the property and is very difficult to get the loan and if you end up with the property, most of the times you will get extremely high utilities bills.

Best of Luck,

Maria Cipollone

http://www.Flahomespecialist.com
1 vote Thank Flag Link Sat Oct 27, 2012
Good evening Dennis,

I've been helping First Time Buyers for 23 years as a mortgage professional and I will tell you what I have always told my clients here in New York: If you are a First Time Buyer, steer clear of foreclosures and short sales.

Foreclosures are someone else's headache. The home probably has not been well-maintained and you're a First Time Buyer adjusting to paying a mortgage. Do you really want to walk in the door to someone else's deferred maintenance that YOU will have to pay for? Also, if you're thinking there are deals to be had in terms of lower prices, mostly those "deals" go to professional investors who can pay cash, negotiate hard with a Lender, and close fast.

For Short Sales, my attitude of late is that First Time Buyers should steer clear. Short Sales tend to be a better deal for the homeowner than for the Buyer. You'll wait MONTHS for the homeowner's Lender to approve the short sale; maybe as long as Six or Seven Months. Meanwhile, you're stuck in a contract to buy that home. I closed a short sale recently with a Buyer who, after seven months said this at the closing table, "I don't even want this house anymore."

And he didn't even get the "deal" on price he thought he was getting! The house appraised for only slightly more than he paid for it at the short sale price. He walked into this deal thinking he was buying a home for $100,000 less than it's value. In the end that wasn't the case.

There are plenty of motivated Sellers with their homes listed on your local MLS. Go find a good Local Mortgage Banker, get prequalified, then find a great, experienced Realtor, and buy the home you want at the price you're willing to pay.

Trevor Curran
NMLS #40140

*If you thought my answer was helpful, please give me a “Thumbs Up” or “Best Answer.” Thanks!
1 vote Thank Flag Link Fri May 3, 2013
There are things to consider when buying a foreclosure.

The problem with Foreclosures is that your offer will be in limbo for possibly months and even then there is no guarantee that you will close on the house. You run the risk of investing a tremendous amount of time without a guarantee of a result.

Plus another downfall is the home will be in need of repairs that will come out of your expense budget. Many people do not realize exactly what the cost is after it is to late. Often to find hidden repairs that were overlooked or underestimated there repair cost evaluation.

If you were looking to move in a certain time frame then I do not suggest foreclosures.Not trying to discourage you, it can be done. It can also be a headache with many pitfalls that cannot be seen even with a good agent. Its always good to look at the pros and cons and see what is best for you.The choice is always yours.
0 votes Thank Flag Link Thu May 2, 2013
"Meeting your needs and exceeding your dreams!"

I don't believe they are overrated at all. There are many terrific deals to be had out there! As long as you get the proper estimates of repairs and have a knowledgable agent. Finding a foreclosed estate marked down 40% off of market value with min. repairs would grab anyones attention. Please feel free to contact me directly if you have any questions or need help in your search.

Keller Williams Realty
Real Estate Consultant
Joseph Fernandez
cell: 817-975-7258
off: 817-635-1157
0 votes Thank Flag Link Mon Dec 3, 2012
Hi Dennis
This is a great question. I don't know that I would say that they are "overrated," but I would say that their effect on the market is definitely "overstated." At the height of the "Great Recession" nationally foreclosures accounted for a substantial chunk of available housing. This created a huge strain on the financial system as banks and mortgage companies tried to grapple with something they knew very little about. The volume of foreclosures and voluntary surrenders left the banks and mortgage companies scrambling to find a way to move these homes quickly through the process so that they could attempt to minimize the incredible financial risk that the foreclosures posed. In some cases this led to abuse of the system in several ways, the most notorious of which we today call the "robo-signing scandal."
Today, as the U.S. Financial institutions continue to improve their finances they have dramatically slowed the pace of foreclosures. We sometimes hear this referred to in the market as “shadow inventory” This inventory represents homes that are considered to be in the foreclosure process but not on the market as “REO” or Real Estate Owned. This is important because the banks are moving much slower and at a more cautious pace since the economy recovering. Now there is a greater probability of the situation being resolved before the bank takes over the property through short sale, loan modification, or hopefully the home owner getting caught up. The “shadow inventory” will likely remain in the vocabulary for several years to come and its effect on the housing market will be debated for decades to come.
Reality is there are a lot fewer REO homes on the market and less deep discounting as banks now find themselves able to cope with the numbers of potential foreclosures they face. For property owners this means greater stability in the market place as fewer of these homes come on to the market forcing buyers to pay more due to decreased supply. For investors this means moving more rapidly and being deliberate in making offers on properties that represent good value and a high probability return as opposed to wild speculation. For the overall U.S. Economy this means a stronger housing market and better economic conditions ahead as home sales and prices increase.
0 votes Thank Flag Link Sat Oct 27, 2012
Overrated ? Can you detail what you like to know Your question makes no sense to me , especially you are an agent.


Lynn911 Dallas Realtor & Consultant, Credit Repair Advisor

Multimillion Dollar Sales Producer
972-699-9111
http://www.lynn911.com

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0 votes Thank Flag Link Sat Oct 27, 2012
It is a question that is meant to encourage a discussion so that people who may be interested can look at the pro's and cons. Does that make sense?
Flag Sat Oct 27, 2012
Not at all, just be aware of what you are getting into, where the bank stands, and the condition.
0 votes Thank Flag Link Sat Oct 27, 2012
Absolutely! Banks (by default) are in the business of selling houses. Unless a mistake is made, they are not in the business of giving anything away. Foreclosure prices are typically reflective of condition, so if it seems like a bargain, then there is a reason. Additionally, foreclosures usually come with special contract addenda that strip away a buyer's protections, including but not limited to remedies for title related problems, inspection and condition issues, seller disclosure (even when the bank is AWARE of latent defects), and anything else the banks' lawyers can think of. Buyers are typically forced to pay to turn on utilities, unwinterizing and re-winterizing the property, just for the purpose of doing their due-dilligence, in addition to the cost of inspections themselves, with no negotiating power if a substantial problem is discovered.

Some agents convince their buyers to shift their focus to short sales instead. Most of the time, this option is no better. While the homes might be in better condition, once again, the investor who owns the loan is not going to give away a house and take a loss, if market value is substantially higher than the offer. If there is more than one mortgage, now you have two investors to convince that your below market offer is in their best interest. The buyer cannot really make any moving plans because the closing date is a moving target. You can get a short sale approval from the investor, go through the whole process, and learn just days before closing that the terms have changed or the approval has been reversed. Because they take so long, sometimes while the left hand is doing the short sale, the right hand forecloses on the property. Same as before, unless someone makes a mistake, these are not usually any bargain.
0 votes Thank Flag Link Sat Oct 27, 2012
Dennis, my short answer is yes. Generally speaking, the better alternative are short sales. While short sales can take some time to close, they are usually in better condition and can be bought for about the same price as foreclosures. I'll be glad to explain more if you'd like to discuss it further. Give me a call. No obligation.

Brent Rice, Top Recommended Broker
Certified Short Sale and Foreclosure Resource (SFR)
The Rice Group, Inc.
brent@ricegroupinc.com
Website: http://www.ricegroupinc.com
214-808-3100
0 votes Thank Flag Link Fri Oct 26, 2012
Hi, Dennis,

In most cases, before the foreclosure the property may have been listed normally, then possibly as a Short Sale. Foreclosure is the last stop. Your agent can often access the former listings and get new pictures, perhaps a Sellers' Disclosure, a look at valuation then and days on market at that price.

When you buy a foreclosure, you can assume that the home has not been maintained for months, that it sat in the hot summer with no AC on, that there MAY be hidden defects, including foundation, roof, plumbing, electrical, etc. You buy the home as is, with all faults, and with no recourse to the Seller.

Also, because of the large amount of information available on line, and the large number of seasoned investors who look every day for bargains, that there are very few bargains posted on MLS. My investor clients get up early, look at the most promising new listings, do a drive by and go see any that meet their criteria, and often with their contractor in tow, and then make an offer based on this formula:

1.. Reasonable market price if the home is restored to better than average condition for the neighborhood. Minus
2. 20% of that price(profit), minus
3. Cost of repairs, minus
4. Holding costs (Insurance, Taxes, HOA Dues, Security, Utilities, cleanup and maintenance while on the market), minus
5. Selling costs AFTER the home is repaired. Equals
6 The maximum bid that works economically. Some put in a 10% fudge factor to cover latent defects or problems that arise during the repairs.

If you plan to hold and rent it, your rental price should equal about 1.2% of your total purchase and rehab costs. For a great book on the subject, read: http://www.kellerink.com/products/hold.

Good luck,

Doc Stephens, REALTOR
0 votes Thank Flag Link Fri Oct 26, 2012
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