The housing market might be enjoying a slow and steady recovery, but the overall economy is putting an invisible strain on potential home buyers. While home values are rising, so are interest rates, jumping from 3.39 percent last year at this time to 4.48 percent currently. Combine these facts with stagnant wages across the country, and fewer people are able to enter the housing market.
That’s why deals such as REO foreclosures are so tempting. They have an average discount ranging from 10 to 30 percent compared to non-distressed homes and are still plentiful, though inventory levels are falling. In January, 34 percent fewer homes received a foreclosure notice than in December 2013, and 37 percent fewer than January 2013.
The median price of a non-distressed property is $165,000, but the median price of a distressed property, which include homes in foreclosure, short sales, and bank-owned residences, was only $114,950. This represents a 30 percent discount; however, that doesn’t mean these homes are a great deal.
THE PROS AND CONS OF REO PROPERTIES
First and foremost, a bank-owned property is a vacant one, and likely has been for a few to several months. During that time the bank does not maintain it and any problems will continue to fester. It’s also important to note that an REO, or Real Estate Owned residence is sold “as-is”. While the bank will make necessary safety and structural repairs, that’s about it.
“A foreclosed property may be a great bargain, but a buyer has to do their homework before making an offer on a foreclosed property. When looking for a home in a particular market, Daren Blomquist, vice president at RealtyTrac, advises buyers to research sales prices, the number of foreclosures in the area, school districts, and amenities such as restaurants, shops, and the proximity to landmarks like a beach or mountains, all of which impact home values.” —Fox Business
Another downside to REO condos is that they have already gone to auction and failed to sell. This means property investors have passed on those units which is something to think about. The, there is the homeowner’s association, and there’s more about that below.Last but not least is the cost of repairs might wipe out any savings or exceed what’s estimated. The main point is just because a foreclosed condo unit is 15 to 30 percent less than a non-distressed property, it might only have the illusion of being a bargain.
BUYING A FORECLOSED REO CONDO
Purchasing a bank-owned property isn’t the same as buying from a homeowner. You’ll be dealing with an entity, and not a family or one person. What’s more, the communication is generally not the best. However, if the deal is right, then it’s worth the frustration. Here’s what you need to do to buy an REO foreclosure condo:
- Get your own real estate buyer’s agent. You can deal directly with the bank and some real estate professionals actually say that’s an acceptable way to go. However, you don’t know what you don’t know and should have someone on your side who is in the know. Get your own agent and save yourself the time, hassle, and frustration.
- Don’t get discouraged by slow responses from the bank. Bank REO departments are busy places and anything you submit will take time to process because it will probably go through more than one set of hands. Understand the bank might be slow to respond to any request and slow to accept, counter, or reject your purchase offer.
- Check out the HOA. One concern you ought to have is the condo community’s HOA. Do a bit of homework and find out if it’s got solid reserve funds and whether or not it’s being sued by current and past unit owners. In addition, find the percentage of distressed units because the mortgage company will base its financing decision partly on that information.
- Have the unit inspected and make sure to include a contingency clause in the offer. Before you commit to purchase, have the condo unit inspected by an experienced home inspector to learn about any problems.
- Get a few estimates for the cost of repairs. You’ll want to have a very good idea of what it will cost to make any repairs and remodeling expenses before you make a purchase offer.
- Make a strategic offer, and don’t go too low. Ask your buyer’s agent what you should offer, figuring in the cost to make the unit livable.
If you are seriously considering buying a condo that is bank-owned and want to know more about the process, as well as how much money you could save, then give me a call for a free consultation. I can assist you in finding the right condo unit and help to negotiate the price. I have many years of experience in Sarasota real estate and can assist you in choosing the right community.