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My 2 year old daughter Emilia loves stickers; she loves them so much that we seem to have collections of sticker books piling up at our house. Emilia gets super excited any time she sees new and different stickers. Just like many home buyers do when they see what I call the “foreclosure sticker price”.
I use the term sticker price with regard to foreclosures a lot when I try to explain the realities of foreclosure pricing. The basic reason is that the price that may be advertised on many homes in foreclosure doesn’t really mean a whole lot, as it doesn’t really dictate what you can actually buy the home for. In fact, that price listed on the MLS often could be far above or below what you can buy the home for. Which makes me think of stickers, because realtors can easily change, or swap out what the sticker price is on any given day.
To get a better idea of how foreclosure pricing works, one needs to understand the different types of Foreclosures. The word foreclosure is often misused. The majority of the so called “foreclosures” on the market today are not really foreclosures, but rather “pre-foreclosures.” A homeowner hasn’t lost their home to foreclosure until it has gone back to the bank or lender. However, an owner can be in default on their mortgage for many months, and the property can sell at a GREATLY DISCOUNTED PRICE before it gets foreclosed on as a SHORT SALE.
Short Sales is a term I am confident everyone has heard of because you can’t go anywhere anymore and not hear someone talking about a short sale. Short sales are the banks’ way of selling a property prior to actually owning the home. Banks will allow a home to sell and take a partial loss on their loan rather than taking back the zero and have to worry about selling the home themselves. Any home that has a loan in default or approaching default can usually be sold as a pre-foreclosure / short sale. Currently there are over 2,000 available short sale (pre-foreclosures) available in this market place
The problem with short sales is the bank rarely tells an agent what price to list the home at. At best they will usually say put it at market price. So agents just come up with a random number. Ideally a price that will encourage an offer but not be too low that the bank will not accept any offers presented on the property. So when you see a short sale, don’t get too worked up about the price, whether it is high or low, as it may have no direct correlation to what the bank will allow it to sell for.
Agents who list short sales are known to radically drop the price as the home approaches the auction date. Your best bet when determining what to offer on a short sale is to follow these simple rules and guidelines. First, always check to see if there are any other offers submitted on the property, as this could definitely change your strategy (you obviously don’t want to be lower than other offers submitted). Next, if there is no offer on the home, then woohoo!, you are in a good position to get a great deal. But don’t write up your offer too low. You often must show comparable homes that have sold at prices similar to what you are offering, as the bank needs justification to approve a sales price so low.
The good news is that there are a lot of foreclosure comps that you can use today to help support your very low offer, and the comps just need to look similar on paper. We all know there can be a big difference in two homes that are the same size, as one could be a terrible layout and in bad shape and the one next door can be full of nice upgrades and amazing landscaping, but on paper they will look similar.
The last important point to make on short sales is that if you are the first offer in on a short sale then be sure you ask to be in first position and to have first right of refusal if the bank requires a higher purchase price. This will help protect you from other buyers swooping in with a slightly better offer.
If you have more questions on foreclosure pricing, and would like help determining what to offer on a home then, give me or Jared a call at 208-287-6589. We are always working hard to help you get the best deal possible.
 Mike Turner
Turner Real Estate Group
7978 W. Fairview, Boise ID 83704
208-287-6589 Office
208-441-0292 Fax
http://TurnerAgents.com
http://cashflowboise.com
http://IdahoLuxuryForeclosures.com
Mike@TurnerAgents.com
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