Navigating the Foreclosed Property Market

My wife and I have more than a passing interest in this story about LA Times writer Peter Hong and his quest to buy a foreclosed property and bring his days as a renter to an end.

We too have tired of writing checks to the landlord each month after having done so for a few years now, often feeling the need for more permanence and desirous of being able to decorate as we see fit or knock down a wall if the mood strikes.

Fortunately for us, we still haven't made a final decision on what state we want to live in (we now think it is Oregon), so that makes renting a place that much easier (and convenient).

But still, we're thinking of maybe buying a bank-owned property sometime next year.

That is, if the price is right.

Peter's report covers the whole gamut - preforeclosures, auctions, bank-owned properties, and flipped foreclosures which is what he and his family finally ended up buying.

I did not set out to buy a foreclosed house. Earlier this year, I wrote about selling my condominium unit in 2005 to rent, rejecting the hyped promise of an always-rising real estate market. Now I've purchased a foreclosed home -- but that doesn't mean I've bought into the new wave of hype in real estate, the idea that cheap, repossessed houses are a sure bet.
...

Some purchasers think foreclosed houses and condominiums are so cheap that they can make money flipping them -- just like in the old days of the housing bubble.

But the reality is that people who buy now are still taking a big risk. The median home sale price in Southern California has fallen close to 40% from its peak, and chances are good, to say the least, that it will keep declining.

That was OK with me, though. I was not counting on price appreciation. After three years in our rented house, my family basically wanted to get a place we could decorate as we pleased, and one with at least some of the features we had been living without -- a two-car garage, air conditioning, a kitchen sink with a garbage disposal, maybe even a dishwasher.

When we began looking for a place early this year, though, the prices set by individuals on their homes seemed ridiculous in light of the market crash. And sellers wouldn't budge, even when they got no offers.

But there's hardly a more motivated home seller than a bank trying to unload a house it had to take over when its owner defaulted on the mortgage. So it seemed as if foreclosed properties might be the best if not the only choice for us. There were plenty of them out there: Half the homes sold in Southern California in September had been foreclosed, and they will probably make up the majority of homes sold in the region for at least the near future.

Peter details his entire experience and this piece is well worth reading in its entirety if you are interested in this sort of thing.

One of the more intriguing elements that he details is the relationship between banks, realtors, and "vulture investors". I've also noticed similar goings-on where some houses are sold at "super-steep" discounts and then show up for sale again a few months later.

It seems the problem for vulture investors in parts of Southern California these days is that prices are falling so fast that even the "super-steep" discounts of three or four months ago provide insufficient cushion to turn a profit.

In the end, Peter just wanted a place to call his own and that's what he got.

That's what we want too.

Also see: Tips for bidding on a foreclosure

Comments

[rm:]

[But there's hardly a more motivated home seller than a bank trying to unload a house it had to take over when its owner defaulted on the mortgage. ]

In talking to REO asset managers, you might find a slightly different story.

While the banks might be motivated to sell their inventory, like their bad paper, they may not be motivated to sell at a price that's worth paying.

2008 Nov 11 09:38 AM

[sstro:]

We live in Ca and have been on the hunt for a year now. We have found a trend that we didn't like so we are waiting till they are truly desperate. The trend I speak of is we find a house we like and can afford, (We do have a 20% down payment for our top price we are willing to pay). We make an offer , our realator tells us there are no other offers a few days later they come back to us with that other offers have been made, So they want our final and best. We made the best offer we were willing to pay when we made the orignal so we don't hear back. We still see these houses for sale so we feel there is a little of a scam working.

2008 Nov 11 09:57 AM

[cadoggy:]

I've always thought this was a total scam invented by sellers' agents.

Claims of other offers should be illegal unless backed up with written documentation. I'm not expecting sellers' agents to divulge dollar amounts while in negotiations. But, one stipulation for close of escrow should be the production of this alleged "other offer" so we can keep sellers honest.

Imagine that! Honesty in business???

2008 Nov 11 02:01 PM

[dr sam:]

I think it IS against the Reatlor code to claim there are other offers.

2008 Nov 13 08:52 AM