Get a great deal, but probably not a steal when you buy a foreclosure

Buyers are still drinking the koolaid! What I mean by that is all of the talk that is heard around the water cooler at work has to be taken with a grain of salt, seriously.

There is no doubt that there are great deals out there and that prices have really taken a tumble. However, almost daily I speak to buyers (or are they really dreamers ?) who say they are looking for a "killer deal", an "extraordinary bargain", "a house at half price", "a real steal". Last week I was referred to a buyer by another agent across town. The agent told me a little about what the buyer was looking for but then I also had an opportunity to speak with him in person. He only wanted the best areas - you know the ones, the areas that haven't seen the price declines as severe as many other areas. He only wanted to see homes that were in really great shape but were priced "bargain blow out". I wasn't talking to an investor. I was talking to someone who wants to move up. He's in a fantastic position right now - couldn't be better as a matter of fact. He doesn't have to sell his current home first in order to purchase. That means that he can find the right property, maybe do some minor work and cosmetics before he moves into the new home and then take his time about selling his former home. Great position to be in right? But, that's just not enough for this guy.

I sent him listings - I'll give you an example. Subdivision that in the height of the market here homes were selling at $400K or so - some a little less, some more, depending on square footage and whether or not they had a basement etc. Even in these tough times, a home sold in that subdivision in September 09 for $285K or something like that. I sent him a listing for a larger home than the September 09 sale. The home had a full basement that was finished really well - nothing cobbled together by an amateur. The home was priced at $239,000 and I was thinking that he could probably get it for around $225K, maybe even a little less with his closing costs paid. His response: "I really want a deal."

Do you want a great home, in a super area, at a really good price, or do you just have to continue the unending search for a $500K home selling for $150K? Makes no sense to me. Why would you pass up great opportunities out of what is essentially pure greed?

I'm not saying that as a buyer you shouldn't take full advantage of this market - you would have to be a complete idiot to pay too much for a home right now - a complete idiot that didn't require financing and didn't have an appraisal that is. Lenders aren't playing games on values. The appraiser either finds good comps to support the contract price or it's a NO GO and the lender will not make the loan. In the past year I have seen it more than I have seen it in my entire career. The mortgage industry is learning that putting consumers in houses that were overpriced to begin with, and giving loans to people who can just barely qualify, doesn't work. Even if the borrower has an 850 credit score and could well afford the payment, underwriting guidelines would prevent the lender from making a loan on an overvalued property - the loan would be unsellable on the secondary market. It won't work any longer.

If you want to get a great deal - here's what you do. Find a great experienced buyer agent. Get preapproved by a lender - preferably one that the agent works with regularly so that you can be assured that what you are being told us accurate. Once you determine a comfortable payment amount the lender will tell you a price range to shop that will help you back into that payment, including taxes and insurance. Find where you want to live - a preferred school district or neighborhood that appeals to you and is a reasonable commute to your workplace. Ask you agent to send you every listing in a $10,000 price range on either side of your target price - you want to pay $150K, look at listings from $140K - $160K. Narrow the search to the homes that appeal to you online and start previewing those properties with your agent until you find the one that feels like home. Write your offer, do your inspection, etc., etc.

Now, if you want to ultimately pay $150K and you start looking at $300K homes you are in for a tremendous amount of frustration and wasted time. In fact, if you are able to convince an agent to work with you on that "plan", I will be very surprised. You see, it's like this. Buyers forget something very basic - banks and agents don't arbitrarily pick a number that they think the home will "go for." They do alot of research. For each REO or foreclosure that a bank intends to market they will hire probably 3 agents to do a broker pricing opinion and the listing agent - all giving an expert opinion about proper pricing - competitive pricing that is consistent with comparable sales in the area. Once the bank has this data, why would they sell a $300K home to you for $150K? They wouldn't. There is no reason to. They have 3 or 4 or 5 experts in the local market telling them that they can get $300K or close to it. If you go in making a lowball offer you are most likely going to be ignored or will receive a full price counteroffer.

Relax. . .you will get a good deal but the price reduction has already been taken. If you are serious, don't frustrate yourself and ask your agent to do the impossible. You can certainly negotiate - you may be able to get several thousand dollars off the price and maybe even a substantial closing cost contribution from the bank/seller, but nobody is going to slash an already "comp" price. Banks are unemotional. Asset managers work these properties on a timetable. The price will be further reduced without an offer on the table if it sits unsold for too long.

The good ones go fast in most markets. Some of the bank foreclosures are selling on the first day they are listed because buyers have been out there waiting for a good one to pop up in their preferred area and price range. These are buyers just like you who started out looking for a "steal", until they made several unsuccessful lowball offers and decided it wasn't fun anymore. At some point for ALL buyers it will become about finding a home. Why not just cut to the chase and start there? It will be like having your cake and eating it too in this market! Good luck!