What are the benefits or drawbacks to expanding my home search to include FSBOs and foreclosures?

Asked by Stephan, San Francisco, CA Mon Apr 23, 2007

How does the buying process for foreclosures or FSBOs differ from homes sold by agents?

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Thomas Tremb…, Agent, Lincoln, NH
Mon Feb 23, 2009
I look at For Sale By Owner sites from time to time to see what is available in our area. I have been selling real estate in our area for over 25 years and have a good handle on values. The last 2 condominiums I found on a FSBO site were over priced by $120,000 and $25,000. I think a buyer has to approach a FSBO with caution and make sure you do a good analysis of market values. Perhaps it is not a case across the boards but without an expert to help guide you, it is like a pig in a poke. Regardless, I think it is good for a buyer to look at all the options. The more you see the more you learn, the better you can evaluate the "right house" when you find it. Even when I am showing prospects various listings I suggest seeing properties above and below their budget so they can establish a "yard stick" to measure the value of the home they select. Good luck.
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Mary Kay and…, Agent, San Rafael, CA
Mon Feb 23, 2009
Stephan,
Foreclosure properties that go back to the lender who held the loan are usually listed in the multiple listing service (MLS) with an agent. They are sold "as is" and are sometimes very competitively priced. However, when they are initially listed, they are not always priced competitively. It is best to work with an agent to determine the best REO buys.
As for FSBOs, during my long career, I have found them for the most part somewhat or totally unrealistic. They typically list their homes at the same price or MORE than other comparable properties in the neighborhood were listed or sold through MLS, which usually includes a commission of 5-6% total. They typically don't want to offer their home for sale at a lower price and give the buyer a better price even though they would net the same proceeds if they sold their home at 94-95% of the closed sales prices in their neighborhood. PLUS, the buyer has no representation and may not be familiar with all of the necessary paperwork, disclosures, etc. If you want to purchase a FSBO, have an experienced agent that you trust represent you.
Let us know if we can be of any further assistance!! Having professional representation and guidance is crucial!!

Mary Kay and Kathy
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Margaret Kap…, , San Rafael, CA
Mon Apr 23, 2007
This question implies that deals are to be made by scouting for these types of sales. Sometimes there are deals but more often that not, there aren't and the headache is not worth it. Rather, the wisest approach to the best deal is to work with an agent skilled in negotiation (both in the initial offer and with subsequent contingencies) and look for houses that have sat on the market for a while with a very motivated seller. Foreclosures follow a very specific, lender-driven process where the lender is trying to recoup their investment. Foreclosures aren't rampant in San Rafael and in my experience, given this neutral market, the lender can expect to get a fair market value on the house. Foreclosures in this market, aren't necessarily a good deal contrary to popular myth and the full set of disclosures you want your purchase, aren't always there. Since I end up listing with many FSBO sellers who previously tried to sell on their own, there tends to be more deals, but it is very much a buyer beware approach. Sellers claim to have more knowledge about how to proceed with a sale, than they do. I can't tell you how many times I've seen sellers say 'oh I had to do this?' This causes frustrating delays and puts the onus of the purchase squarely on the buyer's shoulders. I don't advise as a general rule for inexperienced buyers to purchase in either mode.
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Eduardo Gute…, Agent, San Rafael, CA
Mon Apr 23, 2007
FSBO pros and cons: Pros: The seller hopefully has done their homework and priced the home lower than market rate to take into account half of the commission they will be saving. Cons: However it has been my experience that they often simply price it at market rate hoping to save the extra money. Plus, it's never fun to deal with a seller representing themselves as they typically are not savvy to the legal process, the escrow process and the necessary paperwork required. They often end up relying on YOUR agent instead, putting him/her in a difficult position of helping both sides instead of simply dedicating 100% of their energy on you. As for foreclosures, they can be a great windfall savings, however they do require certain things. When it's time to sell the property, the buyer needs to show up at the courthouse with a cashier's check for the full amount in cash, and can still get overbid, typically by the same people (contractors and deeper pocket investors looking for a great deal). Foreclosures are not easy, but workable.
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