We have recently listed a few properties that had been
picked back up by the banks to be re sold. These properties generate a great
deal of discussion and many times a lot of interest. There are a number of real
estate TV shows that talk about picking up these properties and turning them
around, making a fortune and living the good life…
Now reality…the banking system in our country has been well
designed and thankfully these listings don’t come up too often but when they do
the banks are required to make all reasonable efforts to capture fair value for
the home so that any debt can be repaid. They can’t just dump them at some
incredibly low price. Usually they will have and Agent and an Appraiser go in
and do an evaluation on what the home should sell for and they must be within
10 to 15 percent of one another. If not then a longer process occurs usually
the parties are asked to re-confirm their numbers and a listing price is
determined.
The Agent will now list the home on MLS® but often with a
number of disclaimers; no employees of that bank, any offer is always made at
the buyer’s complete risk and cost, there are no disclosures and the home is
sold “AS IS WHERE IS” and sometimes a few more conditions. What does this all
mean, well simple terms “buyer beware” you need to do your homework period!!!
I don’t very often come across a bank repo that is a real
deal, there are some possible good deals as long as nothing comes up but lots
of risk is placed on the buyers shoulders. You need to be very knowledgeable
about home construction and the costs that you might occur. You also need to
act quickly as these homes don’t usually stick around very long. Unfortunately
I often see someone who isn’t as knowledgeable as they think jump in and snatch
them up thinking that are going to make a killing! In the end they may make a couple of bucks or break-even
but if they really knew the numbers the reality is they often lose money. Even
if you do the work you need to place a value on your time and it should be a
fair value. You need to replace only those items that buyers are going to pay
for, you don’t need to make your flip a new home! You need to know what similar
homes are selling for in that market and you need to come in below these
numbers so that you can make some money. I would suggest that if you aren’t making
20% profit then it wasn’t worth the risk!
What about if you are planning on making this your home?
Well the same principals should apply, you should have a similar margin in play
and you shouldn’t make your new home the most expensive one on the street. Aim
for the middle of the pack just in case in the end this isn’t the home for you
and your family and you end up needing to sell it.
You also need to know what your legal fees are going to be,
if you are selling you will need to know what a REALTOR® is going to charge
you, there may be tax implications so I would also suggest you consult with an
accountant or tax specialists. In the end if you are thinking of getting into
this market you need to do your homework, don’t wait till you see a property
that is of interest. We have the knowledge at Oakhill to help you and what we don’t
have we know where to get it.
