Foreclosure in San Jose>Question Details

Adamntree, Other/Just Looking in Santa Cruz, CA

Foreclosed home prices - Sure to fall?

Asked by Adamntree, Santa Cruz, CA Tue Feb 26, 2008

I have been looking at real estate lately and have come across properties that are not only foreclosed, but red-tagged as well. To my surprise, the properties are advertised for sale at prices well in excess of the maximum potential debt liability (looking online you can find the last purchase price:) One property I found advertised for sale was foreclosed and red-tagged and the lenders were asking twice the total price paid for the property two years ago. Is it just me or is this nuts?

Are these pricing strategies realistic on the lenders part? Can we expect to see foreclosed homes falling drastically in price as the lenders are forced to get realistic? To me this looks like the lenders trying to play speculator when I always thought they lent money solely in for the purpose of the money they make in interest payments.

This may be an oversimplification, but if the lenders really wanted their money back to remain solvent we would see the prices of properties falling faster

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I believe that in most cases, the servicers acting on behalf of mortgage investors, and therefore are required to follow a set of rules on pricing and reductions based on the original loan amount. Also, when a loan is insured by FHA, VA, or PMI, the servicer has to follow a different set of rules than uninsured loans. They seem to be pricing properties more aggressively than in the past, as they now have real sales data from the last several months to go on.
1 vote Thank Flag Link Sun Mar 30, 2008

I found the same craziness when I studied stats on short sales. On average, short sales sold for a higher price per square footage when compared to comparable properties in the same neighborhoods that were NOT short sales. If you are interested in reading the details, I posted the numbers on my blog. The bottom line for me; banks are not motivated sellers. This review was for the San Jose areas hit hardest on the East side of 101.

Good question.
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1 vote Thank Flag Link Wed Feb 27, 2008
What you have to understand is that these pre-foreclosures are still loans secured by the real property, and are still owned by investors. They are mostly only being serviced by the these banks, and if they are to sell them at 75% on the dollar they could be possibly sued or called on there servicing agreement.

This is one major reasons why short sales are not closing at alarming rates, and banks are not taking huge losses on these. Most servicer's might be more willing to let a home to foreclose then make a loan adjustment or short sale. This is just my opinion and the opinion of many others in the industry lately talking to more and more professionals.

When you see these foreclosed properties go back on the market as REO's they are adjusted to market values in most cases and are treated as listings from any seller. They donot discount just to fire sale.
1 vote Thank Flag Link Wed Feb 27, 2008
Hmm that is interesting.Well for one anyone can ask anything....doesn't mean that they are going to get it! I am wondering if in your research you possibly didn't come across the second on the property? Bank usually go to the auction and bid what is owned to them. I haven't seen one yet around here take a property back and ask twice what it is worth but then I am in a different area.

I do agree with you that banks will have to be a little more reasonable to get SOME money back out. Especially in area's like Stockton/ Merced and parts of the Bay Area.

What I have seen locally is that the banks start out at a price and usually adjust down in 30 days if there is no activity. The proper way to do this is to start AT THE RIGHT PRICE and get it sold instead of having to drop/drop/drop.

It's the same for regular home sellers right's important to PRICE AHEAD OF THE MARKET to make sure that YOUR home sells and the other 10 down the street are the one's that are still sitting!
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0 votes Thank Flag Link Sat Mar 29, 2008
Go to a free list at
0 votes Thank Flag Link Thu Mar 13, 2008
Just to chime in on from what we are seeing in Las Vegas -- bank owned homes were sitting on the market UNTIL they started reducing (and some pretty big reductions) prices and in most cases are taking losses from what we see. (Started in November with even more price drops in January.)

The original purchase price you are viewing is not telling the whole story.. You'd have to do some title research for a property to get the real story.

The reference below shows you what is going on in just one community in Las Vegas concerning the original purchase prices and the current asking prices.

Can't say whether the banks are going to drop prices in your area, but it is happening in Las Vegas.
0 votes Thank Flag Link Thu Mar 13, 2008
Yes, even though we been through some tough times like now and back in 89-90. Bay area home values historically go up. While you are still "thinking" they may be going up again. Or will they fall some more? Who knows. It's still a better investment than others. Buy for long term investment, family stability, a roof over your head and the tax benefits. Especially if you are a high-income renter throwing your money away. Don't try to analyze why the banks do what they do. Sometimes they don't even know, hehe. Just find a good deal and buy it. There are plenty out there. Next time I'm fishing off the pier at Seacliff, I'll think of you relaxing in your new home :-)
0 votes Thank Flag Link Thu Mar 13, 2008
You can see the previous price of the property, but same property may be refinanced. In other words if property was bought for $100k in '90, and was worth $200 in 2005 it could be refinanced for a total amount of around $180K or so. Now if the property is foreclosed it can be easily listed for around $180k to cover bank's loss.
I hope this answer will help you
0 votes Thank Flag Link Wed Feb 27, 2008
Hello Adamntree,
The banks are in business to make money and if there is an opportunity for them to increase the net profit they will not hesitate. having said that I also need to say that banks are not in the real estate business meaning they don't want to hold on to properties and are willing to cut their loss and sometime take a fraction of the what they put in to a home just get rid of it. I think the particular instance you gave as an example is an exception and not the norm.

The prices for real estate have held up very strong particularly in the bay are due to the demand and the strength of the local economy. Whether the prices will fall or raise is something I cannot tell. However with the increase in limit for confirming loans there is a good chance for increased demand for local housing market. We'll have to wait and see.....
0 votes Thank Flag Link Tue Feb 26, 2008
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