Top secret inside information. Everyone in Scottsdale wants it.
Whether it is the neighbor in financial difficulty that has hinted it might be time to sell or the allure of the untapped gold mine of the foreclosure market, it is largely held that the best deals are found in the margins. Those hidden niches in the Scottsdale Real Estate market that are tucked away from competing buyers.
Foreclosures, pre-foreclosures, auctions, short sales ... anything which is hidden from the prying eye of the Arizona Regional Multiple Listing Service (ARMLS) is in high demand.
Why? Because this is where you find the smoking buys, right?
Right?
Not necessarily.
I find that the best values are typically hiding in plain sight. It is not simply knowing where to look, but more importantly, knowing what you are seeing.
You have no doubt heard the reports detailing the rampant rise in bank owned property. Homeowners not able to keep up with adjustable rate mortgage increases. Investors attempting to "flip" properties as values began to decline. Job layoffs or transfers which necessitate a sale shortly after purchase. There are countless examples of how people can fall behind and lose a property.
So the bank will be eager to slash the price and get rid of it, right?
Right?
Don‘t count on it, partner. Lending institutions are not unlike typical sellers. They will attempt to recover as much of their investment as possible.
Example:
You, the buyer, are looking for the best value in the market.
Property A has been financed to the hilt. Prior to losing the house to the bank, the previous owner, Mr. X, purchased it with little down in 2005. With prices taking off into the stratosphere, he proceeded to take out a line of credit after getting the home reappraised for $100,000 more six months later. He started to fall behind on the payments in late 2006. With the sag in prices, the home was now worth far less than what was owed. After trying and failing to sell it for a price that would have repaid his debt, he simply gave up and waited for the bank to foreclose in mid 2007. On the way out, Mr. X decided to take all of the appliances and cabinets with him.
Property B has been owned by the Smiths since 1968. They raised their children in this house. Had family and friends over every Sunday. Mr. Smith changed the A/C filter every month, and Mrs. Smith scrubbed the tile grout in the shower every Wednesday. They have all of their paperwork from when they originally purchased the home, including the floor plan. They feel terrible that the new owner will have to contend with the pencil marks on the wall in the kitchen denoting the children's height progressions, but they can't bear to paint over them. They will give the new buyer a $500 credit for the inconvenience. No longer needing such a large home, the Smiths have decided to downsize. They own the home free and clear. After originally purchasing it for about $16,000 and change, the house is now worth approximately $325,000. They would be thrilled with $300,000.
My question to you, the buyer, is this:
Who do you think will be in the better position to offer you a better value? The owner of the property that is upside down and backwards, or the owners of the free & clear gingerbread house?
Are there deals in the foreclosure market? Sure. There are deals in all segments of the industry. But the ones I run across in or outside of the Arizona Multiple Listing Service on a daily basis are very rarely what I would consider a "hot deal," regardless of the listing agent's proclamation that it is listed at 50% of its true market value.
Psst ... it's not!
And if you are eager to purchase a home at auction to get an outrageous buy, be prepared to compete against professionals and bring a suitcase of cash. They don't take American Express.
Don't get sucked in by the buzz surrounding "foreclosure" and "pre-foreclosure" properties. Know why those "Bank Owned" riders go on the sign in the yard? Because they know it will get you salivating over the potential theft to be had. Some of the biggest overpriced turkeys I have seen lately bear this little sign rider.
Evaluate each property's value on its own merits, not its label.
Paul Slaybaugh with Realty Executives is your Scottsdale AZ Real Estate agent. For the right home at the right price in Scottsdale, Phoenix and Paradise Valley, AZ, I'm your guy.
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I love this post, such good advise, agents need to have this discussion with their buyers
Paul.. Very well said! Right "on the money!" Bravo..
Brett: Thank you very much. I wish all agents would have this discussion with their buyers. I hear about too many people jumping on foreclosure properties that grossly overpaid.
Nick: I appreciate it, my man. If I'm not mistaken, didn't we have a cross-sale in South Scottsdale several years back? I believe we did, and it was smooth as silk. Great to hear from you!
Excellent Paul! This message needs to get out there NOW! REO's are NOT the smoking deal people expect. Banks are not desperate and there is little room for negotiation here. I have this conversation with people all week long. I love this line : "the best values are typically hiding in plain sight." I'm taking that one to heart.
Paul - the real estate profession could have contributed to the idea that there is a "steal" in foreclosures or short sales. I see a lot of such claims. Like you said, every "deal" needs to be looked at on its own merits, including the cost of time and uncertainty involved in dealing with foreclosures.
Hi Paul, I do believe we have worked to gether in the past.. Great job on your blog. Continued success to you my friend..
Paul, Well said. I've always tried to sway clients that only wanted to look at foreclosures to reconsider their stance. They are usually not the bargains that is perceived by the general public.
Paul - You are absolutely correct. Bank owned/foreclosures are NOT always the best buys. Plus the hard work that many need before you could ever live in them.
Hi, Jennifer. It's amazing how people feel the need to turn over every rock to find a deal when many are just sitting on the market waiting to be realized, isn't it? Some of the best values of seen have been ignored by others simply because they didn't recognize it. Foreclosed properties are crapshoots at best.
Faina: I agree fully. To get rid of many of those white elephant properties, clever marketing is needed. Make it a hot property by promoting the outrageous value to be had for a song, even if it is not. Too many people fall for it, unfortunately. Thanks for commenting.
Nick: Thought so! I look forward to doing another one, and hope 2008 is a great year for you.
Marc: Exactly. I think the fact that many foreclosed properties are available in the Arizona Regional MLS has opened a lot of eyes. With some of the mystery behind these properties gone, it is a matter of getting the word to prospective buyers that many foreclosure listings are just not good investments. Thanks, Marc.
James: Another good point. By the time many of them are brought back to livable condition, that "smoking deal" just became an albatross.
Paul, like always- well said! Only realtors know where the real buys are hidden. Maybe we should buy something.
Thank you, Judy. I am very tempted to purchase an investment property or three. Selling may be tricky in the current market, but it is an ideal to purchase. I come across nearly a listing a day that makes my jaw hit the floor. Great opportunities to be had for those willing to look.
Great post With the media screaming about how easy it is to get a good deal- our job is hard to honestly educate the buyers and get them the real best deal possible.
Foreclosures are not worth dealing with unless you have investors with cash..and even then, you had better know your area and what you are doing
I followed that link, Ella, and that is definitely a situation which warrants contacting a Real Estate attorney. I cannot dispense a legal opinion on the matter, but it certainly sounds like there is a lot of culpability in this unfortunate situation. As for your question about determining the condition of a property being auctioned, that is one of the biggest disadvantages to buying a property through such a venue. Typically, any/all inspections must be performed prior to the event, so a potential buyer will have very limited ability to look the property over for due diligence. There is generally no inspection period upon a winning bid. This is one reason why many buyers ultimately decide that foreclosure sales are not the terrific values that they expected. Sure, someone can pull a diamond from the rough every now and again, but there is always a heavy amount of competition for the good ones. My question for you is whether you authored that article or if you are looking at the property as a potential buyer? If it is your family member who was taken advantage of, you should seek legal assistance immediately. If you are doing your homework on this property as a potential bidder, all I can say is buyer beware! There are enough values to be found in the MLS right now (including many bank owned properties), that scouring the auction circuit is unnecessary.
The only seller's market right now is REO's, short sales, foreclosures and NOD's. I have been talking with all of my buyers about going after the homes that have "negotiating room". (Equity) Far betters deals are waiting with people who have equity!
Extremely well written article. I am dealing with numerous situations in my market that these words should just be stapled to their foreheads..
Don't get sucked in by the buzz surrounding "foreclosure" and "pre-foreclosure" properties. Know why those "Bank Owned" riders go on the sign in the yard? Because they know it will get you salivating over the potential theft to be had. Some of the biggest overpriced turkeys I have seen lately bear this little sign rider.
Evaluate each property's value on its own merits, not its label.
Thanks