Reader Story: Buying a Bank-Owned Home

Tomorrow we’ll have the monthly foreclosure report for May, but today here’s a comment left by “Ross” in the reporting roundup last week that deserves to be highlighted. Ross recounts his experience attempting to buy a bank-owned (i.e. – foreclosed) home:

On a foreclose property I was watching, here’s my experience:

  • Last purchase price (2006) – $550K
  • Loan amount – $495K
  • Estimated peak pricing – ~$600K.
  • Property foreclosed in August 2008 to bank.
  • Local broker starts marketing the property in Sept 2008, initial price @ $550K. He specializes in BPO/REO sales.
  • I noticed the property, and since I rented on the same street, knew the area. But $550K was too overpriced.
  • Price drops approx ~$25K – $50K every month, usually around the 10th of the month.
  • By December, price is $425K.
  • Jan 09 price is $390K, we offer $300K on Feb 2. Bank rejects the price. We counter @ $325K, bank agains rejects the price with little explanation (’too low’).
  • Feb price drops to $375K, we re-offer $325K. Bank rejects.
  • March, price drop to $350K, we again re-offer $325K, Bank counters at $340K. We stay firm at $325K and tell them our next offer will be lower (which gets the listing agent really upset and writes a slightly nasty reply that we’re behind the curve and the price is amazing blah blah blah).
  • April, price drops to $325K, we again offer $325K and think we’re a shoe-in this time. However, before accepting our offer, bank pulls the listing and sends property to be auctioned at a REDC auction (www.auction.com) taking place in early May.
  • We attend auction in early May at the Meydenbauer center, and win the property for 370K [correction: $270k] + 5% premium (going to the auction house), “subject to seller confirmation”. We place 5% non refundable earnest money (cashier’s check) and wait for “confirmation.”
  • After approx. 3 weeks, and no response, our buyer’s agent lets us know the property is back on the market at 325K, and apparently this is our auction rejection notice.
  • We re-offer 325K for the property and this time get acceptance in principal.
  • Now comes the one-sided buyer’s addendum with a whole bunch of gotchas: bank only need supply “insurable title”, rather than “marketable title” (not being familiar with title matters I had to consult 2 attorneys on the difference). $100-per diem fee for later closing. Contract says seller will not pay any transfer or excise taxes. and a whole bunch of other verbiages that generally protect the bank, give them the right to back out and screw over the buyer.
  • I bring the addendum to my lawyer who makes several changes. Submit offer and addendum with changes. Bank will not accept any changes (actually, they’ve outsourced the sale to a 3rd party who does not have the authority, supposedly, to accept changes). I ask that the decision be escalated. Reply is that a new addendum can be added and they will consider changes on new addendum, but no changes will be accepted on their addendum.
  • Listing agent keeps telling us that he has other backup offers and even rejected one at 10K above asking (yeah right, nevermind his legal fudiciary duty to the seller to take the best price) and that he is doing me favours (yeah right) and generally rushes the process. I am not easily rushed.
  • Much back and fourth ensues, and we finally get the legal matters sorted out more or less to my satisfaction (I accept some compromise based on my belief that the bank actually doesn’t want to keep paying carrying costs on the property and wants it to be sold =)
  • Inspection and resale cert are acceptable.
  • Locked in a mortgage rate of 4.25% on a 30yr fixed /w 1/2 pt & 25% down (lucky timing!)
  • Closing date set in mid June and we should make it to close, I hope!

My conclusions (as a first time home-buyer):

  • Bank have very poor and slow process.
  • Bank actions almost make things seem like they don’t really want to sell their property.
  • Their basic strategy appeared to be a Dutch auction: start the price above market value and drop price monthly to find a market clearing price. The problem is that the market was largely dropping with them, and so they could have sold the property much earlier and probably at a higher price if they had simply started the price at a realistic level and had some flexibility to accept lower than asking price. The Dutch auction strategy would work very well in a appreciating market, as each month’s appreciation will probably cover at least carrying costs.
  • Auction process was a waste of time, money for the seller and an annoyance to buyers (and kept the property off the market for ~1 month of peak season, (i.e. May)) Side note: properties at the auction where financing was available (read: not in horrendous condition) generally sold for 40-50% off peak market pricing. I’m not sure if they were expecting a miracle, not sure why the bank sent the property to auction if they weren’t serious to sell.
  • My wife became very frustrated with this process and was pushing me to just walk away several months ago. She has utter disdain for the seller and takes things personally.
  • In the end, I got a property for approx 45% off peak pricing, record low interest rates and I should qualify for the federal tax rebate. I personally expect the overall market to also fall about 40% in the long run, though would not be suprised to see an overshoot in the short run.
  • I calculated “fair market value” by averaging out comps from the early 1990s based on county records, adding 3%/yr for inflation and determining a fair price for this property would be around $325K – $375K. So my offer was not based on bubble pricing.
  • In the long run, I don’t expect this property to make money, beyond inflation.

What experiences have you had dealing with banks on the buying end? Is Ross’ story a familiar one? Everyone knows that short sales are a pain and take a long time, but are just as many people having difficulties purchasing bank-owned homes as well?

Lets hear your stories.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

59 comments:

  1. 1
    Bellevue_Dad says:

    Why did the bank reject the $370K auction bid to put it on the market for $325K? Is that a typo – did he win the bid for $270K, or am I missing something (not unlikely :))?

    Thanks!

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  2. 2
    Kary L. Krismer says:

    I’d be interested in knowing what changes the attorney suggested.

    We had a client make an offer on a property last month where the bank’s documents were so bad I started a blog piece on it. But then I realized it was stuff only a lawyer would enjoy.

    If this bank is any example, I really think they’re opening themselves up to unauthorized practice of law/consumer protection claims, because I really doubt these forms are attorney drafted.

    Anyway, the story described is the reason why banks typically realize even less on property they own then on short sales. Banks are just incompetent selling property.

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  3. 3
    singliac says:

    Yeah, that part confused me a bit too. But Ross, you are one persistent dude. Congrats on the new house. You earned that discount.

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  4. 4

    RE: singliac @ 3

    HE HAN”T GOT IT YET

    As Kary eluded to, the bank morons are going over the paperwork…LOL

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  5. 5
    mr.finviz says:

    If I were Ross, I will utilize my skills and start a business to help people buy short sale/foreclosed properties. You should make money with those skills. And you see, you are already famous being on Tim’s blog and in the eyes of a big targeted audience.

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  6. 6
    Ross Jordan says:

    RE: Bellevue_Dad @ 1
    Yeah, that was a typo. We won the auction for 270K + 5% fee to the auction house. We we never willing to go above $325K.

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  7. 7
    Ross Jordan says:

    RE: softwarengineer @ 4 – Actually, we have achieved mutual acceptance now, so this deal should be finalized provided my loan comes through. Though technically, the bank has the right to cancel and walk away at any time — but I’m reasonably confident they want to sell it.

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  8. 8
    Ross Jordan says:

    RE: mr.finviz @ 5 – I’m pretty well fed up with this process completely, which might not have come across in my summary. It has been an ordeal, partially because I’m a stickler and like to fully understand everything I sign, but also because of the constant waiting and extensions. So if this deal falls through, I’m pretty sure I’ll rent for life =)

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  9. 9
    mr.finviz says:

    RE: Ross Jordan @ 8 – Damm.. I was already planning to hire you!! :-(

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  10. 10
    jasonwarren says:

    I’ve listed the details of the REO home we just bought last month in comments on other posts, but since our experience was different I’ll repeat a summary:

    – Last purchase price (Jan 2007) $575k, financed by Lehman Brothers
    – Estimated peak valuation $603k
    – September 2008, Lehman files for bankruptcy
    – January 2009, property foreclosed with $488k owed
    – February 2009, property listed for $480k
    – April 2009, price dropped to $440k
    – April 2009, we grab a flyer and try to schedule a showing with the listing agent, who gives us grief about working with an unrepresented buyer
    – We look at the house, which is in good shape and apparently has had significant upgrades since the last purchase, but which does have numerous small issues
    – May 2009, price dropped to $418k
    – May 2009, we retain Redfin as our buyer’s agent after deliberating about whether to go into an REO transaction solo as our first home purchase
    – May 2009, we calculate a fair price based on the original sale price plus 3%/yr appreciation, and settle on offer $50k below this derived valuation.
    – May 2009, price dropped to $401k. We submit an offer the following day for $375k with $500 earnest money and seller to pay $9k in closing, after getting our agent to agree to the ‘ballsy’ EM amount
    – May 2009, bank accepts offer with no counter-offer (they have also outsourced the sale to a third party in CO)
    – May 2009, inspection finds moderate issues with windows and roof, we ask for repair or credit from bank, they refuse
    – May 2009, appraisal comes in at $437k (just slightly above our calculated valuation)
    – May 2009, lock in 4.5% with 1pt @ 30 yr with 5% down
    – May 26, 2009, our bank asks us to renegotiate credits with seller one day before signing in order to avoid seller’s and Redfin’s credits/rebates totalling more than the closing costs. Seller refuses.
    – May 27, 2009, we agree to forgo part of the Redfin rebate and sign
    – May 29, 2009, we close
    – June 2009, Redfin offers to allow us to donate the unused credit to charities of our choice
    – June 2009, we meet new neighbors, several of whom gripe about us ‘stealing the property’ and ‘undercutting the neighborhood’

    I’m relatively sure we could have paid a bit less had we waited, perhaps $15k-$30k, but a similar REO around the corner at a slightly deeper discount closed after a 6-party bidding frenzy that drove the final price $52k above asking, a few other comps sold at much higher $/sq ft ratios in May, and we felt satisfied with the price we offered. Had we waited, the rise in interest rates would have wiped out anything short of a $60k drop, which in hindsight feels like reasonably good timing.

    I hadn’t given much thought prior to moving in about the reality of living amongst neighbors who have all paid much, much more for comparable homes. It’s not surprising that they aren’t excited by a local proof point that they bought into a bubble, but that doesn’t change the reality that we now live in the neighborhood and would like to befriend some of these folks. Lesson: tread lightly if you buy low.

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  11. 11
    Mike2 says:

    By jasonwarren @ 10:

    I hadn’t given much thought prior to moving in about the reality of living amongst neighbors who have all paid much, much more for comparable homes. It’s not surprising that they aren’t excited by a local proof point that they bought into a bubble, but that doesn’t change the reality that we now live in the neighborhood and would like to befriend some of these folks. Lesson: tread lightly if you buy low.

    Look at it this way, you saved more than enough money to invite all the neighbors over for a BBQ and serve Filet. If cooking them a good steak doesn’t warm them up, they’re just jerks!

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  12. 12
    Dan C. says:

    If anyone is interested, here is a link to Columbia Bank’s Builder owned properties which the bank is trying to unload prior to foreclosure. Nothing too amazing on the list, but check out the loan terms they are offering! Lunacy…

    http://www.columbiabank.com/Page.aspx?hid=2679

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  13. 13
    Civil Servant says:

    What’s the aversion on the part of listing agents to showing a house to an agentless buyer? I ask because our current inclination is to work with a real-estate attorney and forgo an agent altogether — we’ve beeen warned that some listing agents will be snotty to us and/or refuse to show us a property or properties we are interested in, and Jason’s comment above bears that out.

    I don’t know, so I’m asking — is it that much of an increased burden on the listing agent to accommodate such requests as these? I am assuming, based on most people’s preference to work with an agent, that the requests are still infrequent.

    Are agentless shoppers not taken seriously as potential buyers, perhaps? If that is so, is there anything that we’d be able to do, say, or document to make ourselves more respectworthy to the listing agent? I’m willing to play along, but only up a point, because really I would like to suggest to this hypothetical snotty listing agent that he or she take a pill, because the more people who look at the property the greater the odds of that 3% coming through (as it eventually did for the agent who was a jerk to Jason).

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  14. 14
    Ross Jordan says:

    RE: Mike2 @ 11RE: jasonwarren @ 10 – On the other hand, property values coming down does have one nice side effect: should lead to lower taxation in future years for all owners of comparable properties. It might be a sorry consolation to have a tax bill shrink by $1000/yr due to a property assessment drop of $100K, but its better than nothing — and if the plan was to live there long term, its the best outcome. (Though, I wonder if property tax rates will be raised to make up the difference in lowered valuations, should that happen on a widescale basis)

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  15. 15
    Groundhogday says:

    RE: Civil Servant @ 13

    1) Listing agent actually has to do some work
    2) They want you to work with a Realtor because it then becomes a tag-team sales job. Both Realtors are actually working together in trying to get you to buy. It is a much harder sales job if the listing agent has to make the sale by themselves.

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  16. 16
    Groundhogday says:

    RE: Ross Jordan @ 14

    Property taxes in WA state are revenue neutral. In others the value of your property determines your proportion of the total taxes levy, and the total is pre-determined.

    More states and local governments would be wise to take this approach… revenues don’t skyrocket when the bubble inflates and crash on the way down.

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  17. 17

    RE: Civil Servant @ 13

    I think there are a couple of things going on:

    1. Listing agents are listing agents for a reason. They don’t like showing houses to buyers. They prefer to do the marketing, use their connections to showcase the property to other agents, etc. They don’t want to do the extra work, and it’s not work they choose to do.

    2. Maybe the mention of an attorney scares them? Some agents fancy themselves quasi attorneys, even though some of them are barely literate, and if they have to deal with the real thing maybe they feel they’ll get eaten alive.
    Plus agents do have this friendly thing going, even if we hate each other’s guts, and I think the fear is that the attorney will be antagonistic and hard nosed, and because of that, it’s less likely a deal will happen.

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  18. 18
    Civil Servant says:

    Ira, thanks for the insight — I’m not too proud to admit ignorance; all this time I didn’t even know that a listing agent might never also be a buyer’s agent. Of course it makes perfect sense now that I think about it, but I never did. This blog and its very fine commenters never cease to be educational.

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  19. 19
    Groundhogday says:

    RE: Civil Servant @ 18

    Listing agents often act as buyers agents as well. In fact, I’d guess that most probably play both sides of the fence. But the real plum, at least prior to the bust, was to get a listing. Taking on a buyer can mean lots of driving around and not necessarily a sale at the end of the day.

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  20. 20
    Blabs says:

    Pardon my density Ross, but did you lose either the 5% auction fee, or the 5% earnest money put down at the auction? Or did that come back to you?
    Thanks

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  21. 21

    RE: Civil Servant @ 18
    Many agents will take listings as well as represent buyers, but some will only do one or the other, and some greatly prefer one over the other.
    For instance, I prefer working with buyers. I feel like I can be myself ( not necessarily a good thing :) ), genuine, and helpful, but some agents just don’t like dealing with buyers, it doesn’t suit their style.

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  22. 22
    Ray Pepper says:

    RE: Ira Sacharoff @ 17

    I’ve never met an agent I didn’t like. Many don’t like me but thats OK. My feeble attempts to educate them on how to conduct real estate in this new era tends to fall on deaf ears but I’m making progress one agent at a time.

    Its just when they quote rules set forth by the NWMLS that don’t exist that I tend to get cranky and begin the educational process. Kind of like my history in nurse management. Older nurses do NOT like to be told that what they are doing is no longer acceptable and not a good nursing practice. Pride is hard to swallow.

    For the life of me I have always been a listing agent and selling agent. Why limit yourself to clients? Again, it reminds me of nurses who will only work certain floors of a med surge unit and not educate themselves in the ICU or ER.

    Laziness?..maybe? Afraid..? I hope not……..

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  23. 23
    Kary L. Krismer says:

    RE: Civil Servant @ 13 – I’m not sure what the banks are paying their own agents, but if it’s 3%, I’d be shocked. While there are exceptions, typically very little is done to market these properties, and I assume that’s because banks put the squeeze on the listing agent’s commission to get the business.

    So given that, it wouldn’t surprise me that listing agents of bank owned properties are reluctant to show properties to unrepresented buyers.

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  24. 24
    Kary L. Krismer says:

    By Groundhogday @ 15:

    RE: Civil Servant @ 13

    1) Listing agent actually has to do some work
    2) They want you to work with a Realtor because it then becomes a tag-team sales job. Both Realtors are actually working together in trying to get you to buy. It is a much harder sales job if the listing agent has to make the sale by themselves.

    Hardly. The truth is that it’s additional work to have an unrepresented buyer, and also has greater potential legal exposure. It’s simply not worth the hassle and risk. Even on my $1,000,000 plus listings I’ve typically encouraged unrepresented buyers to get an agent (or attorney) when I was showing the property to them. The most recent ones took me up on it after I showed them the property twice, and the way things progressed during the closing I was very happy there was an agent on the buyer’s side.

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  25. 25
    Kary L. Krismer says:

    By Groundhogday @ 19:

    RE: Civil Servant @ 18

    Listing agents often act as buyers agents as well. In fact, I’d guess that most probably play both sides of the fence. But the real plum, at least prior to the bust, was to get a listing. Taking on a buyer can mean lots of driving around and not necessarily a sale at the end of the day.

    If you hadn’t said: “at least prior to the bust” my response would have been you’re so 2007. ;-)

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  26. 26
    Kary L. Krismer says:

    Aubrey has a short piece linking to this one, entitled: “Please let me buy your property!” ;-)

    http://blog.seattlepi.com/realestatenews/archives/170841.asp

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  27. 27
    Scott Weitz says:

    Thanks for sharing, Ross:

    Two thoughts:

    1) I can’t wait to go to a REDC auction
    2) this is more proof there is more pain to come….given this type of market for them, the only way for banks to save themselves is to lend out the insane amount of money they have ‘borrowed’ from the Fed to again artificially inflate the bubble. Yet they have tightened lending standards to avoid another collapse. Its a gollyed if you do, gollyed if you don’t situation for them.

    Remember, inflation can only come to fruition (and save hard assets from massive deflation) if the money actually gets in the system. We’ve printed all this money, yet a very small % is actually getting to the people. Its stuck on the bank books or is being used to mitigate the damages that has already been done.

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  28. 28
    Mark J Garey says:

    “Listers Last” is what what an old agent always told me…

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  29. 29
    Kary L. Krismer says:

    By Scott Weitz @ 27:

    Thanks for sharing, Ross:

    Two thoughts:

    1) I can’t wait to go to a REDC auction
    2) this is more proof there is more pain to come….given this type of market for them, the only way for banks to save themselves is to lend out the insane amount of money they have ‘borrowed’ from the Fed to again artificially inflate the bubble. Yet they have tightened lending standards to avoid another collapse. Its a “golly”ed if you do, “golly”ed if you don’t situation for them.

    I’m not sure why you say that’s the only way out, when they could recover an extra 10-20% on short sales by acting more responsibly, and 20-30% on REOs. it’s real money.

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  30. 30
    Ross says:

    RE: Scott Weitz @ 27

    REDC auctions — there’s one coming up in Seattle at the end of June. But that said, do your research. A quick search will find you many dissatisfied auction winners and agents, so you need to be careful. The auction I went to felt sleazy in a vegas conference type of way. REDC has mastered the art of advertising the show (“once in a lifetime deals” act now! previously priced at $1,000,000 now at $99,000 etc.), creating that air of excitement and irrational exhuberance that gets some people to bid more than they planned. All the properties are sold AS-IS condition, with no inspection post purchase (the homes may be available for inspection before the auction) and all contingencies waived. The earnest money requirements are usually 5%, which is fairly high, making the cost to walk away high. Also, the homes are sold “subject to seller approval”, so if you really do end up with a great deal, the “offer” will most likely get rejected (as in my case). That said, I’m sure there’s some bargains to be had — but just read everything in detail and be sure you know what you’re getting into. btw, for agents, the auction house pays 1% to a buyer’s agent (and similarly, the listing agent usually gets paid 1%, at least that’s what it was reported to be in my case). Someone else asked what happens to the earnest money if the deal falls through, and it does indeed get refunded in that case.

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  31. 31
    mukoh says:

    The best deals that I have seen and gotten are done without any auction houses, transaction facilitators, etc… An agent that represents a lot of activities of the people I work with and mine calls up the bank on a known property lets say recently it was a multifamily property 11 units 80% finished, and keeps in touch with them all through until the foreclosure gets recorded back to the bank, then he brings the bank an offer right after the bank has taken possession. Typically this gets the price down at 20% lower then typical comparable property. And that 11 unit condo building is under contract for $80k a unit. The recent appraisal on the property had the units at $250k each finished.

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  32. 32
    Groundhogday says:

    By Kary L. Krismer @ 24:

    By Groundhogday @ 15:
    RE: Civil Servant @ 13

    1) Listing agent actually has to do some work
    2) They want you to work with a Realtor because it then becomes a tag-team sales job. Both Realtors are actually working together in trying to get you to buy. It is a much harder sales job if the listing agent has to make the sale by themselves.

    Hardly. The truth is that it’s additional work to have an unrepresented buyer, and also has greater potential legal exposure.

    I think we said the same thing. I said it required more work for the listing agent. And yes, they do want a buyers agent in the deal to help represent the seller. :-)

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  33. 33
    Groundhogday says:

    By Kary L. Krismer @ 25:

    By Groundhogday @ 19:
    RE: Civil Servant @ 18

    Listing agents often act as buyers agents as well. In fact, I’d guess that most probably play both sides of the fence. But the real plum, at least prior to the bust, was to get a listing. Taking on a buyer can mean lots of driving around and not necessarily a sale at the end of the day.

    If you hadn’t said: “at least prior to the bust” my response would have been you’re so 2007. ;-)

    So here is a question that only a realtor can answer. When I house sits overpriced for well over a year, does the listing agent put pressure on the seller to drop the price? We have many of these in the mid to upper range, and I always wonder why the Realtor doesn’t do their job and talk the price down to where it will sell. How much does it cost to continually list a property?

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  34. 34
    Groundhogday says:

    RE: Ross @ 30

    Unless you really know what you are doing, buying a house at auction “as is” with no contingencies can be very dangerous. Moreover, even if you win the bank can decide not to sell or ask for more money. In a nutshell, it is a rigged game. I’m sure the pro’s can make it work, but the real professionals buy REO in bulk from lenders at heavily discounted prices.

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  35. 35
    Kary L. Krismer says:

    By Groundhogday @ 33:

    So here is a question that only a realtor can answer. When I house sits overpriced for well over a year, does the listing agent put pressure on the seller to drop the price? We have many of these in the mid to upper range, and I always wonder why the Realtor doesn’t do their job and talk the price down to where it will sell. How much does it cost to continually list a property?

    It costs next to nothing to continually list a property, assuming the agent isn’t doing anything like visiting the property, showing it, etc. The NWMLS just charges a flat fee per year, which is the same even if you only represent buyers.

    In the upper price ranges (over 1M), buyers are not shy about making lower priced offers, or looking at listings well above their price range. If such a property isn’t getting offers or interest, it may be something other than price. It’s different than in the lower end, were being listed $50,000 too high can mean no showings at all.

    But to answer your questions, clients are not forced to follow agents’ advice, so I don’t think it’s fair to assume that the agents are not advising a lower list price.

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  36. 36
    Kary L. Krismer says:

    By Groundhogday @ 34:

    RE: Ross @ 30

    Unless you really know what you are doing, buying a house at auction “as is” with no contingencies can be very dangerous. .

    I’m not sure knowing what you’re doing makes a difference there. I’d think the factor that makes a difference would be net worth. It’s probably only a game that should be played by those that can afford to take a significant hit if there is an issue with the property.

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  37. 37
    Kary L. Krismer says:

    By Groundhogday @ 32:

    I think we said the same thing. I said it required more work for the listing agent. And yes, they do want a buyers agent in the deal to help represent the seller. :-)

    Seriously, I do sometimes see a buyer’s agent “selling” a property. “The bedroom has a ceiling fan!” is a private joke between me and one of my clients. But that’s rather rare. And in negotiations it’s also rare to see a buyer’s agent take a position you think is incredibly weak. Even then, however, there may be a reason for it. Some buyers actually do not want to negotiate. They want to offer full list and get the process moving. That’s rather rare, but the point is, unless you put the buyer and buyer’s agent under 24 hour electronic surveillance, you won’t know why a buyer’s agent is acting the way they are.

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  38. 38
    peterineverett says:

    Does anyone know what neighborhood this is in? This is super helpful to amateurs like me.

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  39. 39
    Scott Weitz says:

    Kary @ 29-

    Banks are still pricing these crap assets at 95 cents on the dollar. With the repeal of mark to market, there is no incentive on their end to lower prices and unload inventory as it will only hurt their bottom line.

    The zombie banking system is in full effect, and the only way for them to do as well as they ‘claim’ to be doing long term is to artificially inflate the system again.

    If they take 30% off every property in the country as you mentioned (or more realistically 40%+ as that is what it would take to clear out their inventory), they would all be insolvent.

    In my opinion, the govt should have nationalized or let them fail, sold off all the crap so we can get to an equilibrium sooner. As it is, we’ll be in a ‘funk’ as a society and unemployment will be high for a very long time.

    To prove my point, how many people on this site would go and buy right now if they truly believed prices were at a bottom?? I’d bet 30 people. As is, we’re a country that will be sitting on our hands trying to puff up the old system for the next half decade….eventually, the deleverage has to work its way through.

    Ross- Thanks. I plan on attending.

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  40. 40

    Ross,

    Buying a bank owned should be in the neighborhood of 35% under peak value, much lower than assessed value and less than current appraised value. You then weigh the aggravation factor against the extra discount, and the discount should make the aggravation worthwhile.

    Also, the bank addendum reserves the right to cancel at any time (at least most do) and there are cases where the bank does that up to the day of closing without compensating you for your out of pocket costs and aggravation. Usually they do that when they can do a “push back” to the lender who sold them the paper. After they have an offer and get the paperwork they decide whether to sell it or push the paper back. I recently did one that was already pushed back and we were dealing with the lender that sold the paper, which was safer for my clients. Still, I told them repeatedly “It’s not over til you have recording numbers. Anything can happen.”

    At closing you will see the appraised value in your paperwork. Or you may already know it. If it appraises for much higher than the sold price, and it should, you will at least have a dollar figure to put on the aggravation factor.

    Best of luck to you.

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  41. 41
    Chico says:

    Ross, Will you be my neighbor? Of course you will. I recognized the description of your property. I’ve been watching the unit you are buying for a couple of years now. I’ve even posted about it here a few times. I will be your neighbor when the deal closes. Welcome to the neighborhood.

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  42. 42
    Chico says:

    One thing I forgot to add, when the last owner first listed the unit you are buying, he listed it for $650K. You got it at 50% off. What a deal!

    We also have another neighbor that want’s to sell his unit for $615K. He took it off of the market and rented it out and is waiting until the market recovers. His unit will be going into foreclosure at some point. It’s just a matter of when, not if. It takes some people a little longer to accept reality.

    Welcome to the neighborhood!

    Can you say Fairweather?

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  43. 43
    Kary L. Krismer says:

    I was just checking out Redfin’s site, and the same place they mention they don’t do short sales, they say they will do REOs. I find that interesting.

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  44. 44
    Civil Servant says:

    Kary @ 24, a few questions, if you don’t mind expanding a little on what you’ve already said.

    What is the additional work for the listing agent involved with having a non-agent-represented buyer? (And is there anything I could do or offer to do to mitigate or lessen it for that agent?) What is the greater potential legal exposure? It’s my understanding from talking to a few RE attorneys that listing agents appreciate the due diligence such an attorney is able to provide in a transaction, over and above what an agent can. Your experience is different? (Of course none of you are unbiased here.)

    I’m interested because here I thought that I was educating myself so that I *could* forgo the use of an agent and thereby take more accountability for and participate more actively in a signficant financial decision. But if the listing agent is going to show me not a house but a left cheek until I get a buyer’s agent, this doesn’t even feel like the free market. Grrr.

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  45. 45
    Kary L. Krismer says:

    RE: Civil Servant @ 44 – Well first, contrary to popular belief here, most buyers don’t have a clue what they’re doing when it comes to the details, so they’ll ask a lot of questions. And that puts the agent in an awkward position because they represent only the seller, but have a duty to not deceive or otherwise mislead the buyer. Depending on the issue, it could be like walking a tightrope.

    Second, someone has to let the buyer’s inspector into the house and stay during the inspection. That would be the listing agent if there’s no selling agent. Similarly, someone has to bird dog the loan originator, assuming they’re an unknown entity. Again that can take a lot of work.

    And that gets back to the first issue when you get the results of the inspection. For example, let’s say there is a popcorn ceiling, and the inspector mentions it might contain asbestos. I’ve yet to see anyone flip a deal over that, or even request it be tested (and removal has never been mentioned), but if you tell the buyer that I could see them later fabricating some sort of a claim that you only told them that because you represented the seller. If you told them to do more, the seller could claim you breached a duty owed to them. And it gets even more problematic on issues not as relatively clear as popcorn ceilings (which based on prior debates I’ve had with Ardell, aren’t that clear at all).

    Perhaps a recent example. I had an inspector go off on a non-issue and blow over a serious issue. I represented the seller. With the agent on the other side I was able to clearly stay within my bounds as representing the seller, but also make sure the issues were properly brought to the buyer’s attention. That would have been much more difficult without an agent present, and since each item was in the $20-25k range, there conceivably would have been a lot of exposure, and also not as good for my seller client because it would have perhaps been less likely the buyer would think the non-issue was a non-issue if they didn’t have anyone represent them.

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  46. 46
    mr.finviz says:

    RE: Chico @ 42 – Oh Great.. so which one is it?

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  47. 47
    Civil Servant says:

    Thanks, Kary.

    You know, if you ever wanted to offer some advice here or even on (gulp) the PI site that based on your experience would make buyers more detail clueful in a way that would also benefit agents, I would receive it enthusiastically. I suspect others would too. Could it be a proverbial win-win situation? I want to be the master of my financial fate and I don’t want to cede to an agent a commission that feels way out of whack to me — but I also do not want to make anyone else’s life miserable in the process. And even if I do end up having to suck it up and get an agent, I’d still rather know more than that representation requires me to.

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  48. 48
    Kary L. Krismer says:

    RE: Civil Servant @ 47 – The best solution for your issue is probably a rebate broker. You get the advantage of their ability to draft a decent contract (presumably), and also some certainty that there actually is a commission savings. Just because there’s no agent on the other side, that doesn’t mean the commission gets reduced.

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  49. 49
    Civil Servant says:

    I will look into this, put some feelers out. I wanted very much to feel good about getting on board with Redfin, but their presentation and what seemed to be the client profile really gave me pause. Thanks again. And I mean it about the advice!

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  50. 50
    Kary L. Krismer says:

    One other option would be to ask an agent for a reduced commission–especially where you’ve already selected the property. Apparently some brokerages do prevent agents from negotiating their commission. but that’s the exception rather than the rule.

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  51. 51
    Matthew M. says:

    By Kary L. Krismer @ 23:

    RE: Civil Servant @ 13 – I’m not sure what the banks are paying their own agents, but if it’s 3%, I’d be shocked. While there are exceptions, typically very little is done to market these properties, and I assume that’s because banks put the squeeze on the listing agent’s commission to get the business.

    I don’t know what the bank was thinking on our foreclosed home we’re buying because they listed it at 6%.

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  52. 52
    Chico says:

    RE: mr.finviz @ 46 – Which one is what?

    Wing nut!

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  53. 53
    George says:

    It takes a lot of effort and persistence to get a good buy. There are a couple of issues. The first on bank pricing is that the bank doesn’t have a clue where the market is at and does take the “Dutch Auction” approach mentioned above. Many banks are now interviewing REO agents are wanting to see where their BPOs come in relative to the actual sold price and are starting to take the price issue more seriously. Before the policy was to start at the appraised value which was worthless. Also, depending on the bank, there is a lot of asset “parking” if they sell the asset for what its worth they have to take the write off. If a bank sold all of its REO property for what it was worth it would most likely go under. Prior to the sale they can keep the asset on the books at the appriased value or listed price. The result is they dribble out the assets (home) in relation to their capital position and earnings so they appear solvent to the FDIC. The result is the exact process you see above where the asset is flogged until the “servicer” can show the note holder that the assets flogged the hardest are authorized for release in that quarter. If one has been on the market for two months and had only two rejected offers why sell that one when the one that has been on for 9 months and had ten rejected offers appears to have been worked harder and had all the value wrung out of it. They perceive they are leaving money on the table until a certain amount of pain has been inflicted on the public.

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  54. 54
    SteveH says:

    RE: Ross Jordan @ 14 – Don’t forget that property values could drop to zero and you would still be paying taxes. The property tax amount to be collected is set by voters approving levies. The value set by the tax assessor (sp) is only used to divide up the amount due from each property. For example, if one property is valued at twice another, one pays twice what the other does, regardless of the total taxes collected. So taxes would remain the same on a property even if all properties lost half their assessed value. You can’t win. It’s not like California, where the tax is a percentage of the value.

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  55. 55
    Kary L. Krismer says:

    RE: SteveH @ 54 – I think the base tax (before all the local items) is limited to 1% of value.

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  56. 56
    Johnny says:

    Sorry to chime in late, but I was wondering how I may go about finding such deals. Does anyone have a preferred resource? Getting a 500K+ house for less than 350 seems like quite a worthwhile endeavor!

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  57. 57
    Kary L. Krismer says:

    RE: Johnny @ 56 – They’re listed. Any agent should be able to pull them up for you. I’m not sure if Redfin or other sites allow you to search for them directly, but agents can.

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  58. 58
    Johnny says:

    RE: Kary L. Krismer @ 57 – Thanks!

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  59. 59
    Barbara S says:

    Many of these stories sound similar. I saw a bank owned REO and loved it. The bank was offering the properrty “as-is” without warranty at $189,000. I viewed the home and it looked like a broom and mop would correct everything inside. I originally made an offer at $195,000 and the bank acceptable another offer. A week
    later the listing agent for the bank asked my agent if I was still interested. Of course, so the bank accepted my offer. Escrow started, deposits made. loan approved and somehow the appraisal was dragging. Finally, this was the only thing we were waiting for. The appraised value was $165,000. Now the bank will not give me the loan for the property originall I was approved for at $195,000. Now we are waiting to see if the bank will lower the price. It appears that the bank don’t want to sell property as slow as they take. Hopefully, they will lowe the price and I can get on with my business.

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