For the last several years, we have heard people in the media talk about the deals to be had by buying a foreclosed property. In the luxury market, we’ve heard the tale of the six-million-dollar home that sold for 2 million in foreclosure. Yes, some of those stories are true and yes, some people have gotten amazing deals, but not everyone. In fact, most of these types of amazing deals are few and far between and getting harder to find each day. Most people who got a screaming deal on a foreclosed property will be honest and tell you that it had more to do with timing than anything else. For the vast majority of buyers and particularly luxury buyers, the foreclosure may not be the best deal on the block. Let’s look at a few examples:
Let’s say a home was selling for 3 million dollars by a private seller. It doesn’t get sold for a variety of reasons and the bank forecloses. We’ll say the time period for this has been a year to two years. By the time the bank takes it over, they do their appraisal, take the brokers’ price opinions, calculate the decline in value over two years, they’ll set the price to sell and sell quickly. For this example, we’ll call it 1.7 million. This one 1.7 million probably represents a much more fair market value for the property. The problem occurs when “Joe Buyer” sees this as a foreclosure and thinks that he can negotiate the price down from 1.7 to 1 million. In most cases, this doesn’t happen. You see, believe it or not, banks are really healthy right now. They have lots of cash and they don’t mind holding these homes. I took a look at 12 foreclosed homes that sold in the last six months for over one million dollars and in most cases, the banks only discounted an additional 75K to 125K off their original asking price to get it sold. What does this tell us? Very simply that once the bank puts the home on the market and sets the price, they are not deeply discounting it after that to get it sold.
Let’s take a look at a non-foreclosed home. This could be a builder’s home, a builder’s home with a bank involved, or just individuals. This group of people has no bank guidelines or mandates that they have to follow. They are much more flexible with their price and can make quick decisions. In many cases, they have a much greater ability to discount their property than the banks do. I regularly run across private sellers that had their homes for sale in the 5-million-dollar range but now would take in the 2–million-dollar range. I have homes for sale where buyers can get 30, 40, and 50 percent or more off the original asking price. My question is why wouldn’t “Joe Buyer” be going after these individuals? It’s an easier transaction; you don’t have to take the house “as is” like every foreclosure and you don’t have to jump through all hoops or be at the bank’s mercy. The reason why “Joe Buyer” doesn’t always target motivated private sellers is because he has been brainwashed by media reports that the best deal out there is a foreclosure.
In conclusion, today’s message is “do your homework.” A motivated private seller may be a better deal than a foreclosure and without all the hassle.
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