Bargain Hunters On the Loose

I had a phone call from an investor this afternoon, the latest in a series of folks looking for bargain foreclosure homes. He wanted to buy low and sell high (don't we all!), but he wanted to do it in two years' time. Buy a foreclosure now for under market price, sell in a couple of years after it had appreciated substantially and reap a big profit. Unfortunately, the low-priced condos he chose weren't the bargains he was hoping for.

Buying a lender-owned or foreclosed home is a risky business these days. Lenders want to get as much as they can, and aren't often willing to sell for peanuts. They aren't interested in being in the home ownership business -- they want to sell the houses/condos/townhomes. But, they also want to make as much money as possible.

Market value is a funny thing. In Denver values are declining, unless the home is in good condition in a good location and is priced correctly. Those kinds of homes will often sell in a week. But because there are so many houses available -- it's definitely a buyer's market here -- values across the board are declining. Sellers put their homes on the market hoping they'd sell soon and for close to market price. But after awhile, they begin to realize that 1) not only won't it sell quickly, but 2) they won't get what they're asking, maybe it won't even be close to what they were hoping for.

A recent transaction had the buyers getting the place for about 6% less than the latest asking price, and that was down 2.2% from the sellers' original list price. The buyers got it for 7.75% less than the sellers originally hoped for. That's a pretty normal transaction in our market. The house had been on the market for nearly six months. It took the sellers that long to embrace reality.

So where is market value in all this? It's what a willing buyer pays a seller for a house, no matter how much it sold for two years ago. And market values are declining across the broad spectrum of housing in Denver.

So where can you get a bargain? Buy one when the foreclosed house finally goes on the auction block. And for a good article to read about how to do that and still make money, check out the Wall Street Journal's article, "Profiting on Foreclosures."