Home Buying in Las Vegas>Question Details

Jc, Home Buyer in Las Vegas, NV

Why are "bank owned" homes being priced so low?

Asked by Jc, Las Vegas, NV Sat Aug 2, 2008

If it is to generate multiple bids and a bidding war, is that ethical? Why not price the home closer to what the owner would really like to get for the home or price it closer to the true appraised price? (Especially since NV law indicates that agents cannot appraise a home; although they can provide a suggested price for sale.)

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Hi Jc,

Typically the listing price is determined in conjunction between the Listing Agent and the Asset Manager for the "bank", however most of the time there will be some added input from a third party such as an appraiser, or agent that has conducted a BPO (Broker Price Opinion) for the bank as well. The asset manager will take the price opinions of the listing agent as well as the appraisal or BPO and determine a proper asking or list price for the property. This is true MOST of the time, however if the Asset Manager has done work with a particular agent enough times to be sure that the agent is not just pricing the property for a fast sale (so the agent can get paid quickly) that asset manager may or man not get another opinion from a third party, and simply rely on the Listing Agents opinion.

Remember that a good deal (much like beauty) is in the eye of the beholder. For example: Take a house that typically sells for $300,000 that is listed for $250,000 because the house needs $50,000 in work to make the house sell for $300,000. Now "Buyer A" comes along and he would be hiring contractors to do the work at $50,000, so Buyer A says "this is no bargain, why not just buy a house @ $300,000 and avoid the added work and hassles." Well "Buyer B" comes along and he is going to be doing all the work himself, and maybe Buyer B has friends or family that can get him good deals on carpeting, flooring, countertops or what have you. Since Buyer B is doing all the work, and maybe can get all the materials for $6,000 (for purposes of this example), to Buyer B he is getting a GREAT DEAL. Many times people do not put a price on what their time is worth, and even so again a good deal is in the eye of the beholder.

Also keep in mind appraisals and BPO's are one persons “educated” Opinion of Value. If I hire 5 different agents or appraisers to tell me the approximate value of my house, I am going to get 5 different opinions of value. Provided the agents and/or appraisers have adequate experience, each of their opinions should be relatively close to each other, but again it is an opinion of value. And those opinions of value can vary depending on the market conditions, the type of buyer that is likely to buy a particular home, etc. As an example: a while ago we were assigned an REO house by one of the banks we sell for. The home had a swimming pool, but we suggested a list price that was in line with homes that did not have swimming pools. The first appraiser that the bank hired advised the bank that our opinion of value was to low and in the appraiser’s opinion the house with a pool was valued at an additional $20,000 because of the swimming pool. However in this case the swimming pool is not adding value to the house and here is why…the home is in an age restricted community (55+ community) and “most” people in this age group DO NOT WANT POOLS, and therefore to most people that would (and are able to, due to the age restriction) purchase this home, the pool is not worth anything. For 5 months we had the house priced at what the appraiser stated, and the bank wanted to list the property at. All of the feedback we received from buyers and/or their agents was that the house was priced too high, as none of the buyers cared that it had a pool and most did not want a pool at all. Finally after 5 months with no offers the bank hired a second appraiser, the second appraiser explained to the bank exactly what we had originally explained to the bank, that the pool was not adding value to the house, and in fact was a detriment to most buyers, due to the fact that the home is in an age restricted community. Finally the bank agreed to lower the price to what we recommended originally, and a month later we sold it. Oh and by the way the buyer hired someone to fill in the pool (they did not want a pool either) and although they loved the house enough to pay in order to have the pool filled in, they would not have paid an extra $20,000 for the house, when the were going to pay to get rid of it. So when friends, family, neighbors, etc. tell you what they believe is a good deal or not, keep in mind that it is one persons opinion of value, and that even many real estate agents (and yes appraisers as well) sometimes do not always have enough experience, or knowledge to provide a quality “educated opinion of value”.

Sincerely,

John Goad, Jr.
of The Goad Team
Century 21 Infinity
Web Reference: http://www.GoadTeam.com
1 vote Thank Flag Link Mon Aug 4, 2008
Yes, I understand that the idea is to generate interest in a property, but it still doesn't seem reasonable to me. Even buyers on E-bay want to buy an item lower than the asking price, not above the asking price!

Unfortunately new construction doesn't seem to have what my family needs. One of the to be occupants is a handicapped (uses a walker or wheelchair because of leg problems) octogenarian so there can be no stairs and a large yard is a must so that they can enjoy the outdoors; therefore, the "no lot line building" that we currently see in new construction is unacceptable. We are also area specific due to location to work and other family members (southeast Las Vegas and north west Henderson).

p.s. we've already bid on four houses and have lost out on all of them.
0 votes Thank Flag Link Sat Aug 9, 2008
Jc,

It's all about the basic "Law if supply and demand." When the supple far exceeds the demand, price will drop as a means of presenting an advantage to the relatively few buyers that are actively seeking the product.
0 votes Thank Flag Link Sat Aug 9, 2008
Jc wrote:
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Thanks for all the answers. So from what I can tell about the answers is that if a house is listed at 160K; the actual price that the bank wants is 200K. But with all of the work that is needed with these REO homes because of damage, lack of upkeep, and poor construction, I estimate 50K is needed to make it habitable. Therefore, the property is no longer a "good" deal nor one which I would find manageable and affordable, especially since with just the repairs to make the place livable would then be the unknown repairs that homes often occur after purchase and living in for six months! Also, I would love to look at non-REO homes but in my price range there aren't any. So goodbuy dream that my family, three of us currently renting individually, could live in one location - Las Vegas, instead of different locations through the west coast region.
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Have you looked at any new construction? I've seen a few builders selling in the $200k range and you wouldn't need to worry about all the fix-up as with the bank owned homes. Also, if you keep looking at re-sale, you may find non-REO homes appearing in your price range. In fact I've got a non-reo, 3 br over 1450 sf in a gated community with pool near Decatur and Russell that should come on the market next week around $200k. Click on my profile to contact me if you'd more info before it's officially on the market.
0 votes Thank Flag Link Sat Aug 9, 2008
Hi Jc:

I am so sorry, did not mean to crush your dream of having your family live in one place. If you look at it from another angle, things might work out.

I am from Marin, which is a very different market than Las Vegas. I do hear that there are a lot more REOs in Vegas and the prices have gone down a lot. My theory is that they are trying to generate a bidding war by pricing a home artificially low - from what you said. However, if there are a lot of inventories, then there will not be a bidding war.

I always tell my clients that unless you put an offer in, you will never know! So they do and we continue to try to get the best price for them.

The other thing I have is a 'Rent vs. Own' calculator. http://www.sylviasellsmarin.com/RentvsBuyCalc

I thought this might help you a bit on the budget of buying vs. renting in three different places. On top of that, you can depreciate a property and get tax write off. Take the three rental payments and compare that to the possible mortgage and expense you might have when owning a home, compare that to the net house payment, then you can decide if you can truly afford to buy or not.

Who knows, it might surprise you.

Best,
Sylvia
0 votes Thank Flag Link Sun Aug 3, 2008
Sylvia Barry,…, Real Estate Pro in Novato, CA
MVP'08
Contact
Thanks for all the answers. So from what I can tell about the answers is that if a house is listed at 160K; the actual price that the bank wants is 200K. But with all of the work that is needed with these REO homes because of damage, lack of upkeep, and poor construction, I estimate 50K is needed to make it habitable. Therefore, the property is no longer a "good" deal nor one which I would find manageable and affordable, especially since with just the repairs to make the place livable would then be the unknown repairs that homes often occur after purchase and living in for six months! Also, I would love to look at non-REO homes but in my price range there aren't any. So goodbuy dream that my family, three of us currently renting individually, could live in one location - Las Vegas, instead of different locations through the west coast region.
0 votes Thank Flag Link Sun Aug 3, 2008
We call the prices of REO properties their "starting bid"
0 votes Thank Flag Link Sat Aug 2, 2008
And many times in places that are more desirable, the artificially low REO prices are driving up multiple offers.

We recently had a few houses here where the listing price for the REO properties are really low, 5, 8 offers were received. I asked one of the Listing Agent about the price at $500,000, she said, well the bank is really excepting mid Fives. I think she got that within four days of house being on market.

Sylvia
0 votes Thank Flag Link Sat Aug 2, 2008
Sylvia Barry,…, Real Estate Pro in Novato, CA
MVP'08
Contact
Simply put... their pricing strategy is to sell the home within a specified period of time and usually is discounted at 20% below market value. Market value is arrived at by averaging 3 of the closest sales in the last 3 months. They will also hire a an apprasier and have a broker do a price oppinion and average the 2, then discount the price.
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Sat Aug 2, 2008
You are correct. Many of the Banks have changed their pricing strategies. They are intentionally pricing the homes 15 to 20% below the current market. This is done with the intent of creating a buying frenzy. It is kind of like the Auction mentality. There are getting multiple offers right away. Then they are going back and asking for the buyers to re-submit their highest and best offer. This is just a strategy to drive the price up. I have personally seen this where the price is driven up so high that when the buyer with the best offer goes to get the property appraised it will not appraise for the bid he made. Luckily the Bank will then usually drop the price back down to exactly what the house appraised for.
One buyer I worked with recently compared this to the frenzy that existed back in 2004 when the homes were all being sold for above the asking price. The main difference from back then was the buyer had to sign an addendum saying they would pay the difference between the appraised value and the sales price in cash. Fortunity the buyers do not have to agree to such terms today.
The listing agent does not set the list price the Banks usually do this themselves, they just use the BPO's to determine the estimated list price.

My suggestion for a buyer is to totally disregard the list or asking price. You need to figure out the area you want to live and have your Realtor look at comps that have recorded in this area in the last 30 days. This will give you an idea of the true market value. Many homes are coming on the market priced at $85 per square foot when the 30 day comps show it is worth $105 per square foot. If you want the property you will need to offer right around $105 per square foot (in my example). You really have no shot at getting the house for the list price when they are priced some much under the comps unless it has been totally stripped of all cabinets, fixtures, sinks, etc...
Good luck and keep trying :)
0 votes Thank Flag Link Sat Aug 2, 2008
It is to attract the highest number of buyers and sell the home at the highest possible price in the shortest amount of time. There is nothing wrong with that in itself. There are certainly other problems such as listing agents not being able to keep up with the number of listings they've taken on or the banks not set up to handle the number of properties they're trying to sell. I think our MLS should add a data field for "offers in review" so it's clear if they're sitting on 15 offers but have not accepted anything yet.

If you're looking at bank owned property, think ebay, except you do have the advantage of being able to make bids on more than 1 property at a time. Don't fall in love with the property. Make your highest and best offer and move on to the next, or don't look at bank owned homes or homes that you know are severely under priced.

This market has got to be one of the most confusing and frustrating for buyers. Everything they hear has been telling them it's a buyers market. Then they start looking...make an offer or two and say "WHAT'S GOING ON! my full price offer sat around for 3 weeks and the home was sold to someone else for $40k over list. That's not a buyers market." So all of the sudden someone who might be a first time home buyer in a buyers market finds themselves in situations once reserved only for experienced and thick skinned investors.
0 votes Thank Flag Link Sat Aug 2, 2008
Hi Jo! REOs, also known as 'banked owned', the bank sets the pricing on the property to be sold. They may use more than one opinion in determining the pricing, such as, receiving 'suggested' pricing for a sale from more than one Realtor and/or their own appraisers. Once a property becomes bank owned, the previous owner is no longer involved. Hope this helps!
0 votes Thank Flag Link Sat Aug 2, 2008
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