Foreclosures, Short Sales, and Auctions! Oh my!
- What an incredible time to be in real estate! Have you ever heard the term, “buy low, sell high”? Of course, who hasn’t? Well, how do you know when to buy? The housing market is complex, all markets are complex. There are a lot of aspects of a housing market to consider when looking for a good time to buy. Supply and demand is one aspect. And looking for distress is another. I have discussed the effect of supply and demand in earlier posts to this blog, so I will not elaborate on this aspect. Distress, however, is an aspect that, many times, is overlooked when considering a purchase. Distress causes a seller to make decisions that they might not normally make when in their comfort zone.
- Distress comes in many forms. Let us focus on Foreclosure. Once a homeowner gets into a situation in their lives that, for whatever reason, makes it no longer possible for them to make the payments on the mortgage, the loan enters distress. This puts pressure on the homeowner and the bank. The homeowner does not want to lose the home, lower their credit rating and cause embarrassment to the family. At the same time, the bank has its own bills to pay as well. Let us not forget that the banks are run as a business. A business needs income to survive. This is quite simplified, but serves the purpose of this discussion. The bank wants to keep their doors open in order to function as a business. The interest coming in from the loan payments are their income. Once that income flow is disrupted, it causes distress. People, and companies, for that matter, that are in distress, will make decisions that they would not ordinarily make. Banks are no different.
- A homeowner facing Foreclosure will feel that there is no way out. This is not true. There are options. Loan modification is one, a Short Sale is another. See my blog entry titled “Foreclosures, Short Sales and the Embarrassment Factor”. This blog entry discusses a seller’s options when facing this stage of distress. Once the seller is in this state of distress, an option has to be chosen. Each option has different consequences for the seller, however, it provides many opportunities for buyers. Buyers can offer less than the home is worth according to the local market analysis. In many cases, banks are approving Short Sales and helping these sellers get rid of the homes at discounted prices to the buyers. This is a wonderful opportunity to help both the seller and the buyer. If handled correctly, these transactions are a win-win.
- Once the home goes to Foreclosure sale, the seller loses out. They lose the ability to modify the loan terms, sell the home short, and generally wreck their credit rating for many years to come. Most sellers want to avoid this situation, so are willing to accept low offers on their homes. Lower offers than they would EVER consider when not in distress. This should be looked at as an opportunity that will benefit both sides, a true win-win. The only loser is the bank.
- The next opportunity for buyers to consider is buying after the Foreclosure sale occurs. Once the sale occurs, the bank takes possession of the house. This is now considered to be real estate owned by the bank, (REO). The banks really don’t want REOs. It is considered to be an asset on the bank’s books. For every dollar that a bank has as an asset, it needs to hold a percentage of it in cash in reserve with the Federal Reserve Bank. I am not going into the details of this aspect of banking, suffice it to say that this creates distress in the banking world. This part of banking is what caused many banks fail. Buyers can take advantage of this distress and see it as another opportunity. REOs are sold on the open market, just like any other home. These homes are priced considerably lower than the competition. Buyers should consider this as an occasion to buy low.
- The third aspect to consider when looking to buy low, is Auction. Auctions are the wave of the near future. Auctions generally occur when the REO fails to sell on the open market. I say generally because there are many reasons why Auctions occur, let us just focus on this one side of it for now. This type of Auction is usually looked at as a last resort for the bank. A bank will pick a reserve price and a starting bid. This price is commonly quite low comparative to the market data. Buyers are given a chance to bid on the home in a public bidding process. One catch, and there are many, these buyers have to have cash. It is as simple as that. Well, not really, there are a lot of things to consider when buying a house at Auction. Look for blog posts right here on this subject in the near future. There is a lot to discuss on this aspect and cannot wait to lay them out for you. There is no more exciting way to buy. It is not for everyone, and not what I focus on, but wow! What a fascinating culture! And one we will be seeing a lot more of soon!
- So, these are just three aspects to look for when considering when is a good time to buy a home. Buying low and selling high is the most fundamental way to stay successful in your investments. Consider all aspects before making a decision. I can help you on that path. Good luck and have fun!
- Referring website; http: //www.coloradohomesalesonline.com/
- Investing in the real estate market has risks and is not for everyone. I am, by no means, suggesting this is for you. I am a trained professional, I do this for a living. If you would like more information regarding real estate investment, just let me know. You can also consult your accountant, attorney, Priest, Pastor, or Rabbi about the risks involved in investing. I am, however, available to answer your real estate related questions.
