Tuesday, March 27, 2012

Foreclosure Myths Canon City Colorado

I received the following email from a buyer looking at property with questions about foreclosures and bank owned properties.  I think you might find the return email informative and helpful.

To John   

I would also like to know why I meet so much resistance when I speak to a Realtor about bank owned properties. It seems no one wants to steer me in that direction. Is it that the profits are not there for the realtor or is the paperwork a heavy burden. Please tell me the real deal on this. It has bothered me a lot. As I am looking to have the property paid off in 9-14 years I need to look at all possibilities.

From John
Hi Lora 
   I have attached a link on foreclosures that I would like you to review before reading my email.  Please note item #2

   Here we go, I will give you a foreclosure/bank owned/REO, 101 course.  But first let me say you are the boss and I will work with any bank or lender on your behalf for a purchase.  In Colorado a lender gets Deed to a property back after the County Treasurer has held a public auction on the property and the bid price did not meet the required minimum.  Now the bank owns the property in the banks name.  The Bank will hire an asset management company to secure and list the property, this asset management company retains a local Real Estate Company to market and list the property for sale.  So in most cases the property is listed along with everyone else's property in a local Multiple Listing Service, (MLS).  This MLS then pushes the information out to all its members and over the Internet.   
   Point 1, there is no one place that just shows foreclosures for sale, there are web sites that claim to do this and they want you to join in order to charge you a fee for information that is already available to you and I through my local MLS for free.  These Internet foreclosure company's may then try to sell your name to a Realtor for a referral fee. 
   Point 2, we are dealing with a bank.  Their prime motivation in this process is to get the maximum amount of money they can for the sale of this property.  The bank will have paid for a Brokers Price Opinion from a licensed Colorado Realtor.  The bank will know what the fair market value is.  
   Point 3, if a foreclosure is priced significantly below market value the property is most likely in a distressed condition.  In many cases the former owner of the property was not happy about leaving.
   Point 4,  In Colorado, Realtor's are allowed to practice limited law on the basis of the pre-approved forms from the State.  Which means on any of these forms I am allowed to go over and explain certain items with you, always with the caution that legal counsel is advised in all Real Estate Transactions.  I will submit an offer to a bank on your behalf on these approved Colorado Forms.  The bank may not sign these contracts, they will write a multipage addendum to the offer that is drafted by their attorney and they will typically only sign the addendum.  At this point I am no longer allowed to explain or counsel you regarding the details of the banks addendum to the contract.  Even if I have a good understanding of the contract I can not by law offer advice.  So I have to look at you and say Lora I'm not an attorney but I have concerns about this contract.  I have highlighted some areas and I think you need to seek legal counsel.  You'll say I think we will be ok I trust them and I will look at you and say no really you need to have an attorney review this for your protection.  And here is why.
   We are dealing with a bank and their asset management company and their attorneys.  If I may use a poker analogy, they are the Dealer, they own the Casino, they are paying the Bouncers and they are writing the rules to the game.  Sounds like a stacked deck.  Here are some common problems that we see.  The bank will write language in the contract that makes the contract non-binding on the bank, meaning that the bank may replace your contract with another one from a higher bidder.  The bank may come back to you later in the process and require more paper work or additional money in the form of earnest money etc.  The bank may write language in the contract that puts your earnest money at risk, in other words if you do not complete the transaction for any reason your earnest money may be nonrefundable.  The bank will not be in any hurry to accept your offer, they may collect offers for let’s say 30 days and then pick the one they like the most.  So in short, the bank will dictate the terms of the sale strictly in favor of the bank, the buyer is left with little protection and some risk that their earnest money may be at risk.  I many cases after a buyer has gone through this process and not been the "winning offer" they are frustrated and angry and the Realtor's lose a client.
  Wow that's a lot.  So my recommendation to you is look for property that you like and has an attractive price to you, if it turns out to be a bank owned property, then we can deal with that as it occurs.  There are sites for HUD homes and other Government Programs, but again, those deep discounts that people think are out there are largely a myth and most are listed on the MLS.  I hope I have provided some insight to this process without being a buzz kill.  Again I will work with any bank or lender on your behalf.

Thanks John

PS your email and question has generated some buzz in the office.  We will be doing study on the last 12 months sales of bank owned properties in our MLS with a comparison of sold price to list price.  Great question thank you and I will send you the results of the study.

And here are the results of the study for bank owned property sold in Canon City, Colorado

The search was from Jan 1 2011 to March 27, 2012 it included all Bank/REO residential properties sold in Canon City between these dates.  Here are the findings

93 bank owned properties sold
The List price to sold price average was 95.99%  which means the property sold for 96% of the listed price at the time of the sale.
The high sold price % was 138% of list price
The low sold price % was 71.53% of list price
Average days on market was 117.