We often receive offers on REO properties that are mere pennies on the dollar. Sometimes the offers are less than 50% of the list price and buyers express a degree of shock and dismay that the owner did not accept their offer. This is the result of a thought that somehow a bank or mortgage lender is willing to lose money on a real estate transaction whereas an individual owner is not. The realty is that because of a maze of rules, regulations and guidelines the bank often has their hands tied and, in many cases, are much less likely to negotiate a sales price below the list price. Also, banks and mortgage lenders, just like individual owners, are economic animals, they are driven by the bottom like just as much as an individual owner. Just because a property is a foreclosure, does not mean that the owner will give it away for any price. In fact, in many cases, banks and financial institutions have the luxury of allowing a property to stay on the market until they get a suitable price.
We recently analyzed the 1107 transactions in the Montgomery area that closed from January 1, 2011 through May 31, 2011. We looked at the average list price, the average sales price, the average price differential (the percentage of the final sales price to the list price) and the average number of days on the market. We then looked at the same criteria for REO properties and further for HUD owned properties
Here’s what we found:
Average List Price Average Sales Price Average Price Differential(%) Average Days on Market
ALL Sales $144,710 $137,679 94% 132
REO $83,710 $77,899 91% 89
HUD Homes $71,887 $65,383 92% 77
As you can see the average difference between an REO property and all sales combined is relatively minimal (3%). This difference is even less when you consider that most REO sales do not include a seller contribution toward closing costs and other items such as repairs With HUD owned properties the difference is even less.
There are certainly opportunities for consumers to save money, for example the average REO is listed nearly $60,000 less than the average property on the market. However negotiating from the list price is not one of them. This is a function of the price being a good price in the beginning, remember almost every REO has a minimum of two Broker Price Opinions and an appraisal performed before it’s placed on the market. If you look at only properties that have sold between $75,000 and $90,000 (the average range of REO properties), the difference in list price and sales price is still a negligible 4% and the average days on market is much less for REO sales.
It is also noteworthy that REO properties sell in much less time than the market as a whole, so it is a prudent use of a buyer’s time to make reasonable offers in the beginning. We generally recommend that the buyer make their highest best and final offer up front and that this offer be as close to list price as possible in order to secure a successful transaction. This should be done in consultation with your Realtor and the consumer should ask their agent to perform a BPO, because in most cases, REO properties are listed well below market.
Questions about buying a home or foreclosures? Contact Bo Evans boevans@knbology.net
Buy a fixer-upper, as is, or a foreclosure with FHA 203k loan and turn it into your dream home. For more details about 203k loan, visit www.cfs203k.com.
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