Luckily, my real estate career began before the dreaded “mortgage crisis” 10ish years ago and I was able to wade my way through the mine field and stay clear of what many agents experienced that ran them right out of the business. I say luckily because I’ve witnessed so many agents come and go during this time. I’ve also learned so much about foreclosures, bank owned and distressed properties and even short sales. So much that I’m busting the number one myth about buying foreclosures.
Many home buyers, and investors, often assume that buying a foreclosure or bank owned property will automatically be a steal, or come with equity built in. This is not always the case, in fact when you consider all that comes with buying a foreclosure, it may not be as great a deal after all. What home buyers don’t know is that is just how harrowing negotiating the purchase of a bank owned property can be.
Because these types of homes are owned by banks and lenders, you must understand that the lender calls the shots. It’s not as cut and dry as many think. Lenders aren’t easy to work with and often there is a lack of communication and utterance incompetence.
You see, although these homes are listed by real estate agents and brokers, those agents have little to no say on the actual negotiating, they are simply a facilitator of the transaction. The go between for the bank and the buyer’s. And they usually trade quantity for quality. That means, they the broker/agent is promised or assigned numerous properties to list for a bank, in exchange for a lower commission than standard. So the listing agent of most foreclosures is typically working for less fees on each individual deal but manages several property listings at once.
Banks assign “account managers” to their real estate owned (REO) portfolios. Account managers typically handle 100’s of property files at a time. Meaning they’ve never actually seen the property in person, only on paper. Therefore their negotiating is based on pure financial or business perspective, not necessarily on logic or even emotion. It’s all strategic business based on the banks financial outlook at the time of negotiating.
Although many foreclosures are in terrible condition and need renovations or remodeling work done such as new paint and carpet or replacing the HVAC or appliances, the banks have already considered this and have priced the homes with that in mind. They don’t consider your time or effort or what the house next door looks like. So as the potential buyer of a foreclosure, you want a deal, but the bank feels you’re getting one for their listing price.
Then there is the time involved in purchasing a bank owned property. The negotiating process tends to be a bit longer than typical real estate transactions because you’re dealing with a corporation not an individual. Account managers are wheeling and dealing on a pile of properties and they’ll get to yours when they get to it. It’s that simple. Therefore if you have an ideal time frame for your purchase, you must be willing to be flexible as these transactions typically take additional time.
Banks have their own policies, procedure and priorities and they don’t always make logical sense the buyers and that causes many frustrating moments. Once you weigh in all these added caveats of buying a bank owned property, you may find that purchases a home from an individual is more to your liking. Or you may be completely un-phased and ready to duke it out for your future home.
Don’t let these truths sway you from looking at foreclosures during your house hunt, but do make sure that you are working with a Realtor that is very familiar with the ins and outs of REO purchases. And keep in mind there are many great bank owned homes on the market that are great deals, but they don’t last long, so call your Realtor to schedule a showing as soon as possible.
I’ve worked with many buyers that did indeed purchase a bank owned property all over the metroplex and I’m definitely not saying there aren’t any deals to be found. In fact, I love it when I’m able to find my clients amazing deals on a foreclosure that is worth the process. And I’ve found many! But I’ve also learned how to navigate through the bank process that allows for an enjoyable experience for my buyers. I always forewarn my clients about the pitfalls of buying all types of properties.