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In January of 2007 approximately 529 properties foreclosed upon in Clark County. Of those, approximately 60 were purchased by the "all cash" trustee sale investors. Leaving 469 Bank Repos’ in one month alone, available to any buyers, by the way those numbers continue to rise faster than you can spell 'the middle east'. (up over 600% from last year!)
The Question is of course, how you get your hands on these properties at bargain prices.
The answer is ‘it depends’ come on I sell real estate for a living for the past 15 years, think your going to get an easy answer?
It's All About Timing
We have so many variables in place so let’s address the most common ones.
How long has the Bank Had The property
How many properties does the bank currently have
How many existing loans does the bank have that are currently in default
What is the current competition in the area
What is the property condition
Who is the bank
The Country as a Whole
Even though we are looking at Las Vegas the question applies to the country as a whole.
Lets Face it , if the bank has foreclosed on 300 properties this month and owns them all They have one purpose, get rid of them. However, they still have a fiduciary duty to those that invest with them, of course that is cautiously balanced with self preservation, quarterly earnings, stock price and so on.
Making an Offer to the Bank
The standard procedure a bank will adopt when selling a property starts with finding an agent that specializes in working with his type of home.
They will rely on the agent/broker to provide them with accurate market Data. And take the agents pricing under advisement.
The bank has an undisclosed timeline it won’t share with its agent representing. The agent will one day receive communication from the bank authorizing a price adjustment (typically downwards).
You may of already submitted an offer and had it rejected or no response at all. Don’t take this personally its part of the ‘game’ now that the property has dropped in Value its time to submit another offer. Being aware of another rejection.
This unusual mating ritual can continue indefinitely. The secret to securing an offer and purchasing one of these homes comes down to watching the market and persistency (plus an automated system comes in handy)
A lot of the time Value has nothing to do with it, it comes down to how much inventory is on the shelves. Better for the bank to liquidate then be liquidated.
Bank Appraisers
Why doesn’t the bank just get an appraisal?
Answer, the appraiser isn’t going to purchase the property and the banks prefer to get a Brokers Price Opinion (B.P.O.) . Hmm the banks don’t trust an appraiser? They prefer to hear it from the agent? But wasn’t it the bank that needed an appraiser to lend on the property in the first place? I’m not going to that place! Ok back to the subject :)
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Believe me on this one, when markets are shifting either up or down (and the pendulum can really swing fast) the last place to find a true value in an unstable market is an appraiser. Why?
A Paradigm Shift
Believe me on this one, when markets are shifting either up or down (and the pendulum can really swing fast) the last place to find a true value in an unstable market is an appraiser. Why?
Simple, they only look at historic events. A Great example: a Few years ago the winds of change descended not only on Las Vegas but the rest of the country. The leaves started rustling, and one could almost sense something was on its way in. Having only dealt with Real Estate in Las Vegas in what had always been a slow steady market, my 15 years of real estate on a local level did not prepare me for what was to come.
Prices started rising on a monthly level, inventory started to decrease. Full price offers were being rejected by sellers; multiple offers were becoming common place. If an agent had a new property listing for sale all they had to do was put it in the Multiple Listing Service, get a cup of coffee and wait for the Fax machine to start churning out cash offers.
The Highest amount of offers I had was 16 on one property. The buyers were paying way over list price, coming up with Cash between the sales price and the appraisal price. The banks were lending money like it was going out of style, every fourth person I spoke was now an investor. It was insane.
The appraisers didn’t have a clue how to handle this; all of the appraised values were taken from previous sales. One strategy that was applied was waiting for the cash offer down the street to close and then the appraiser could bring the home they were trying to value in at a higher price.
Similar things happen in a down Market. That’s what Vegas is right now as of this article.
Record Defaults
The Banks are seeing record defaults, one in 93 homes across America went into default in the past 12 months. But keep that in perspective. Not every one of these homes is going to be foreclosed on.
A congressional hearing took place in the first week of February 2007 it was amazing to watch, (got to love pod casts). They spoke about predatory lending, loan fraud and such like. Analysts predicted 1 in 5 of the sub prime loans (sub prime being a stated income limited documentation) will foreclose this year, crunching the numbers harder that equates to 2.2 Million people will get foreclosed on this year.
So now it comes full circle.
The banks own the properties they lent on. But, who is going to buy them?
Two Million Two Hundred Thousand homes for sale. Think a few banks might start struggling to keep this sort of inventory afloat. Right now they know its coming but banks like to let things hit them between the eyes , just to make sure they aren’t really dreaming, ‘Toto wake up’
Whos on First?
Who is going to purchase these properties?
Well think about it, if we have two million plus homes foreclosed on and 1 in 93 households got a pending foreclosure notice its probably not going to be those folks.
Add 50% as it wouldn’t be untypical to say more than one person was on the loan that got defaulted on.
That being said Credit scores of these unfortunate people will be adjusted downwards (by the way part of the whole reason this market has moved around like a roller coaster is of the credit scoring implemented a few years back, but that’s another rant),.
An adjusted figure then would be conservative to say 1 in 75 people are not going to be purchasing these homes because they have a poor credit score meaning a higher down payment and a higher interest rate.
Chris! Answer the question: who is going to buy these houses?
Who is Buying Houses?
Everyone if the price is right, but the real rewards are going to the savvy investors, being able to purchase in a down market takes courage and financial reserves with a full understanding of market conditions. If you have the courage and the reserves but lack the day to day market knowledge I’m interested in talking with you.
Real Estate has so defiantly changed shape from its former self a decade ago. Now it has been played like the stock market. (Remember the I.P.O and the .com crash).
Many so called real estate Investors had forgotten to take one major thing into account; they didn’t plan an exit strategy.
Chris Giddings
Chris Giddings is a licensed Real Estate agent in the State of Nevada, He has been practicing Real Estate on a local level for 16 years. His experience has been VP of RE acquisitions for a public traded company, TV producer of The Home Hunters. Serving on the educational committee for the: Greater Las Vegas Association of Realtors.
Is Frequently Placed in the top 10% of Agents.
Specializing in R.E.O. Short Sales, Trustee Sales, Bankruptcy Sales and Pre-foreclosure Sales
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