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.