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Perry Hender…, Real Estate Pro in Austin, TX

Please tell me why a foreclosure is a good buy?

Asked by Perry Henderson, Austin, TX Fri Oct 5, 2007

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Perry, you could buy the books, tapes, and courses offered by Carelton Sheets, Dave Del Dotto, John Beck, Dolf De Roos, Robert G. Allen, and dozens of other “nothing down easy road to investment riches real estate gurus.” These "educators" all thrive by perpetuating the myth that foreclosures are - per se - good buys.

They were able to perpetuate that myth because foreclosures were often good buys in the depths of previous real estate depressions in the mid 20th century. Intriguing anecdotal examples of past bargains could be dug up and recycled as if they had just happened. Telling the "foreclosures are a bargain" story is a path to riches for too many of those people.

Some of the guru's just use actors and scripts. Others use rare but actual examples.

All along the public has been confused because of a freak few situations that occur when properties sold for "pennies on the dollar" at tax auctions and at cash only trustee sales.

Logic needs to be disregarded in order to connect the following statements, - statements which are based in fact, - just not when they are combined with each other:

1. You may be able to buy a home at a (trustee’s) foreclosure auction (For all cash, no contingencies allowed)
2. You can buy a home with poor credit.
( If you put enough down or have equity and pay a very high rate and points)
3. You can buy a home even if you have no job. (Again, put enough down, and or have sufficient income from sources other than a job.)
4. You can buy a home with 100% financing. (Special home buyer programs for owner occupants, who have sufficient income and great credit, or by borrowing against other assets and maxing out personal lines of credit, including credit cards)

Bad gurus list all of the above statements without my parentheses comments, and tell gullible people that they can do all of these things at once, and on the same deal.


Real estate boomed a few years back; foreclosures were terrible buys, then. The demand created by the myth far outstripped the supply. Today the supply of foreclosures in many markets outstrips the demand for them. For the first time in a decade banks have to price their REO's competitively to get them sold.

Occasionally, now in 2007 and into 2008, there are situations that occur when a foreclosure is a good buy. The great stories will occur and the next decade of charlatan “educators” will have fodder for the next decade of seminars and “systems” to sell to yet another generation of gullible consumers.

To read the writings of somebody who rants better about this subject than I do, go to:

http://www.johntreed.com/Reedgururating.html


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3 votes Thank Flag Link Fri Oct 5, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
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Foreclosures are not necessarily a good buy. There are times when such will present an attractive purchase oppty. There is a large segment of the populatoin which automatically assumes that foreclosure equals savings, and that incorrect automatic assumption will cost many buyers dearly.

Offering prices on a foreclosure if REO owned and marketed will often be at or even high for the market, therefore not representing the good savings deal. Condition will be as-is. Negotiations are often slow, and banks are not known for making good or quick decisions.

Pre-foreclsoure properties will often reflect deferred maintenance, and other clouds on the title.

There is risk associated w/ purchasing foreclsoures and those risks go beyond the few examples cited above. Often, you can find a better deal by simply working with a buyer agent who is well connected and knows the market prices and market buzz. Motivated sellers with clean titles, can be excellent buyer opptys.
3 votes Thank Flag Link Fri Oct 5, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
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Perry,

Is this a test?

Because I know you are not a fan of foreclosures, in general:

(From a previous answer of Perry's)

"... you should know the following...

I've said this over and over in previous posts.... The F-word is for the novice or average frustrated investor. What makes people think that putting an offer on a foreclosed house is going to get them the best price? You can count the number of TV ads promoting a system that teaches how to buy foreclosures.... That makes 50 other people dropping offers at the same time, at a price that was already "market".... That's just crazy talk. You want a deal, ok I can understand that but you are not going to find it with a foreclosure without one of two things 1. cash and personal connection with a REO manager or 2. a overpriced offer that you beat 15 other people for.

It's easier to knock on a door of a house that needs repair and say "my wife and I are looking for a home in this area and yours looks cute from the outside". Do you know anyone selling in this area? A hand written note works well too. My closure rate is almost 70% on the notes.... And you get the best deals with no competition."

So, curious, why are you asking us?
2 votes Thank Flag Link Fri Oct 5, 2007
Patti Pereyra, Real Estate Pro in Chicago, IL
MVP'08
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Jim, thank you so much for your answer. You are one of very few people who are telling the truth. Very good job.
1 vote Thank Flag Link Fri Oct 5, 2007
Perry.... I can't believe you are asking this question. Foreclosures and/or shor short sales are not necessarily a good buy especially since time is of the essence.

Many people pervieve them as a buys but quite the contrary. there are many great buys on the market. A good Realtor will help you cut thru the properties.
1 vote Thank Flag Link Fri Oct 5, 2007
Pam Winterba…, Real Estate Pro in San Ramon, CA
MVP'08
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Perry,

Short Sale is the real F- word here.

Foreclosure is perceived as a good deal. Just like Wal mart has the best prices.

If we did not have foreclosures we would have Short sale`s, which is 90% of nothing.

The good deal begins with the great Realtor that you hire.
1 vote Thank Flag Link Fri Oct 5, 2007
Mr.P, Other/Just Looking in Arizona
MVP'08
I am sure you know this but foreclosures are not always a good buy. I have seen Banks overprice foreclosures just as fast over zealous home owners. We have to do our research.
1 vote Thank Flag Link Fri Oct 5, 2007
It all depends on where it is, what it is, how long you want to wait to get it and how much it will really cost you to move in.
Web Reference: http://www.iansellsnola.com
0 votes Thank Flag Link Fri Oct 5, 2007
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