Tuesday, January 4, 2011

Foreclosures aren't the only bargains!

Foreclosures are big these days. There's a proliferation of buyers who only want to buy foreclosures, agents who specialize in foreclosures and web sites that list upcoming foreclosures.

Foreclosures are fascinating because they require knowledge and preparation. Bidders must do their homework in order to know the details of the particular property (or more commonly, properties) that they are bidding on, along with the market knowledge to value them correctly. They must know the expected cost of repairs to the proeprty and check for liens against the title. They must have cash immediately available for the purchase and a cushion for unexpected expenses. Finally, they need the discipline required to bid at an acution, i.e. the judgement to pace bids judiciously, a firm price cap, and the ability to walk away.

After putting in all this work, will the foreclosure buyer have the best and cheapest property? Not necessarily. Don't get me wrong. Foreclosures can be a great opportunity, but they're not the best deal or the best option for every client. The greater Seattle area has a healthy mix of foreclosure properties, short sales, bank-owned, and yes, traditional seller-owned-and-not-in-trouble properties. All of these properties compete with each other for buyers, so that prices are generally equalized, with occasional bargains slipping through.

Where are these bargains? You never know until you negotiate one. Foreclosures are a good source, but more than one potential buyer has bid on a foreclosure property only to find that one of the lien holders is the final buyer. Often in these cases, the bank's loss mitigation formula is showing that there's more value in the property than is evident in the auction bidding. This can be a stumbling block in buying bank-owned properties, as well. In my opinion, the purchase of a bank-owned property often has the best combination of motivated seller and realistic pricing. Unfortunately, these deals can trip over inflated broker's price opinions and pricing floors set by the aforementioned loss mitigation formula. A truly motivated individual seller can beat any of these options with realistic pricing, low hassle closing, and a well-maintained property. In fact, a truly motivated seller of any kind is the real requirement for finding a great deal in the real estate market. For the buyer who's looking to spend the least and get the most, the rest is really just window dressing.

So go ahead and check out the foreclosure listings. Run your numbers and make some bids. But don't neglect the rest of the real estate market; there may be an even better deal right under your nose.

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