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Price jump

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Anonymous
Not applicable

Price jump

So, back in the fall, we put an offer in on a house that we fell in love with. At that time, due to having a 0 score (no open lines of credit), we only qualified for an FHA loan. The house needed some work, but we put in an offer for the full asking price of $74,900 and offered to take care of the work that needed done on the outside, if the sellers could take care of the things that needed fixed on the inside. They countered back at full asking price, and were not willing to do any of the necessary repairs. We knew that they were facing foreclosure, so at that point, we decided to pull out and wait. The house went to Sheriff's auction and was bought back by the bank for $56,000 on January 19th. At that time, it was appraised at $69,000 according the sheriff's website. So we kept watching the property, as now we have a few open lines of credit, and the scores are decent enough to try again, maybe for an fha 203(k).  As of last week, it has been listed up for sale again, but the price has jumped over 52%, and is now $113,900! Holy cow!  We are in process of pre-approval, but are not willing to jump on the house at that price. I cannot for the life of me understand why the high increase? It sat for 6 months with no sale at $74,900 and as far as I know, we were the only ones willing to bite at it then. We love the place dearly, and it's exactly what we've been looking for. I hate to miss out, but what can we do if the price is that high and we would still need to put some work in it? Comps in the area are around $65,000-79,000. I don't know if it's because the listing agent is from a larger town than where we are, or what. Who sets the price on the homes? The bank? Do they do their own appraisals before listing? I just can't see how in the world it has jumped so much in 2 months time. 

Message 1 of 7
6 REPLIES 6
JBjunior
New Contributor

Re: Price jump

You didn't say what work needed to be completed on the inside and/or outside.  Is it possible that they completed that work, did some upgrades, etc?  Also, don't discount what you mentioned in your post, they were facing foreclosure and had to sell.  The bank is now carrying the note fully, with no overhead, and can afford to wait until the right buyer comes along.  Additionally, there is the factor of buyer's bias (maybe not the real term) but if it is priced too low, you think something is wrong with it, which could be why more people didn't look at it previously.  Pricing it similarly but slightly lower than others in the area my bring out more buyers.

Message 2 of 7
StartingOver10
Moderator Emerita

Re: Price jump

I don't know your area but I can tell you a little bit about how foreclosures (bank owned) homes work in my area and around some parts of the country. Your Realtor will be able to tell you if it works the same way in your area. 

 

I have sold many bank owned homes over my career but recently I have noticed that in my area the bank is looking for a premium price over market price.  Almost all of the bank owned homes are sold AS IS and generally are sold without any repairs performed.  The notable exception is Fannie Mae owned homes in some areas are fixed up and usually only in neighborhoods that are first time homebuyer type neighborhoods. Fannie will fix the property up to sell it for top dollar - even beyond top dollar and their repairs need an inspection because they focus on cosmetic repairs even if the home needs repairs to the systems. So, be careful. 

 

In any event, when you have a bank owned home the asset manager sets the price. The listing agent has no control in this regard. S/he will have a couple of agents provide BPO's and in fact the lender sometimes has an appraiser provide an appraisal but most of the time the asset manager does NOT price the property anywhere close to market - at least in the last few years from what I have seen and experienced. Please note: the asset managers handle entire regions of the US and it is common for the asset manager to be located elsewhere in the country. I notice Texas and California have a few asset managers that handle my area of S Florida for example.  They also do not take into account the repairs that might be necessary.

 

The two most common strategies are:

 

1) price is very, very low - well below market to solicit multiple bids above list and 

2) price it way above market and hope that someone will come in with cash and not want an appraisal.  This happens all the time. 

 

Looks like the asset manager on this one used option 2.  

 

It is critical when you are buying a foreclosure to make sure you do not overpay for the property. The asset manager may not even be all that cooperative when presented with multiple offers.  Make your decision based on the property condition and offer what you feel it is worth based on the comps and the condition. Don't get too attached to the property.  I have seen the bank prefer to wait and then when no suitable offers come in, they will drop the price. Sometimes it takes a while for the price to reach market value.  

 

Lately I have noticed you can actually get better homes in better condition for less money than a bank owned home. Check with your Realtor. 

 

 

Message 3 of 7
Anonymous
Not applicable

Re: Price jump


@JBjunior wrote:

You didn't say what work needed to be completed on the inside and/or outside.  Is it possible that they completed that work, did some upgrades, etc?  Also, don't discount what you mentioned in your post, they were facing foreclosure and had to sell.  The bank is now carrying the note fully, with no overhead, and can afford to wait until the right buyer comes along.  Additionally, there is the factor of buyer's bias (maybe not the real term) but if it is priced too low, you think something is wrong with it, which could be why more people didn't look at it previously.  Pricing it similarly but slightly lower than others in the area my bring out more buyers.



Outside work- barn needs repainted, also roof. Touch ups on garage. Inside- windows need replaced, paint, etc. These were FHA requirements. 
There has been absolutely no work done. Pics were taken a little over a week ago. Nothing has been done. The home sold last in 2008 for $85,000. It appraised at $69,000 2 months ago. There are many homes for sale in the area, some much nicer with no work needing done, and they aren't even asking that much. It is high for our area. The asking price last time was reasonable, and is pretty much the going rate around here. I just think it's way overpriced now. 

Message 4 of 7
Anonymous
Not applicable

Re: Price jump


@StartingOver10 wrote:

I don't know your area but I can tell you a little bit about how foreclosures (bank owned) homes work in my area and around some parts of the country. Your Realtor will be able to tell you if it works the same way in your area. 

 

I have sold many bank owned homes over my career but recently I have noticed that in my area the bank is looking for a premium price over market price.  Almost all of the bank owned homes are sold AS IS and generally are sold without any repairs performed.  The notable exception is Fannie Mae owned homes in some areas are fixed up and usually only in neighborhoods that are first time homebuyer type neighborhoods. Fannie will fix the property up to sell it for top dollar - even beyond top dollar and their repairs need an inspection because they focus on cosmetic repairs even if the home needs repairs to the systems. So, be careful. 

 

In any event, when you have a bank owned home the asset manager sets the price. The listing agent has no control in this regard. S/he will have a couple of agents provide BPO's and in fact the lender sometimes has an appraiser provide an appraisal but most of the time the asset manager does NOT price the property anywhere close to market - at least in the last few years from what I have seen and experienced. Please note: the asset managers handle entire regions of the US and it is common for the asset manager to be located elsewhere in the country. I notice Texas and California have a few asset managers that handle my area of S Florida for example.  They also do not take into account the repairs that might be necessary.

 

The two most common strategies are:

 

1) price is very, very low - well below market to solicit multiple bids above list and 

2) price it way above market and hope that someone will come in with cash and not want an appraisal.  This happens all the time. 

 

Looks like the asset manager on this one used option 2.  

 

It is critical when you are buying a foreclosure to make sure you do not overpay for the property. The asset manager may not even be all that cooperative when presented with multiple offers.  Make your decision based on the property condition and offer what you feel it is worth based on the comps and the condition. Don't get too attached to the property.  I have seen the bank prefer to wait and then when no suitable offers come in, they will drop the price. Sometimes it takes a while for the price to reach market value.  

 

Lately I have noticed you can actually get better homes in better condition for less money than a bank owned home. Check with your Realtor. 

 

 


Thank you. That makes sense. It is a Fannie Mae Homepath home now, and is listed "as is."  If the repairs were done, I wouldn't even hesitate at that price. I guess we'll see what our LO has to say once we get our preapproval letter. Our realtor says to wait about a month and see if the price comes down. Homes are not selling in our area, and especially at that price. There are some very nice homes for sale here, but this one has everything we were looking for. I guess we'll have to wait and see what happens. Smiley Happy

Message 5 of 7
Revelate
Moderator Emeritus

Re: Price jump


@StartingOver10 wrote:

I don't know your area but I can tell you a little bit about how foreclosures (bank owned) homes work in my area and around some parts of the country. Your Realtor will be able to tell you if it works the same way in your area. 

 

I have sold many bank owned homes over my career but recently I have noticed that in my area the bank is looking for a premium price over market price.  Almost all of the bank owned homes are sold AS IS and generally are sold without any repairs performed.  The notable exception is Fannie Mae owned homes in some areas are fixed up and usually only in neighborhoods that are first time homebuyer type neighborhoods. Fannie will fix the property up to sell it for top dollar - even beyond top dollar and their repairs need an inspection because they focus on cosmetic repairs even if the home needs repairs to the systems. So, be careful. 

 

In any event, when you have a bank owned home the asset manager sets the price. The listing agent has no control in this regard. S/he will have a couple of agents provide BPO's and in fact the lender sometimes has an appraiser provide an appraisal but most of the time the asset manager does NOT price the property anywhere close to market - at least in the last few years from what I have seen and experienced. Please note: the asset managers handle entire regions of the US and it is common for the asset manager to be located elsewhere in the country. I notice Texas and California have a few asset managers that handle my area of S Florida for example.  They also do not take into account the repairs that might be necessary.

 

The two most common strategies are:

 

1) price is very, very low - well below market to solicit multiple bids above list and 

2) price it way above market and hope that someone will come in with cash and not want an appraisal.  This happens all the time. 

 

Looks like the asset manager on this one used option 2.  

 

It is critical when you are buying a foreclosure to make sure you do not overpay for the property. The asset manager may not even be all that cooperative when presented with multiple offers.  Make your decision based on the property condition and offer what you feel it is worth based on the comps and the condition. Don't get too attached to the property.  I have seen the bank prefer to wait and then when no suitable offers come in, they will drop the price. Sometimes it takes a while for the price to reach market value.  

 

Lately I have noticed you can actually get better homes in better condition for less money than a bank owned home. Check with your Realtor. 

 

 


What's the buyer mindset in that instance?

 

Highly interesting post though, thank you!




        
Message 6 of 7
StartingOver10
Moderator Emerita

Re: Price jump

Rev, let me clarify what I mean by that (because the statement on its own is clear as mud!)

 

The asset manager prices it high regardless of the values determined by BPO's or appraisals.  When asked, their response (through their listing agents) is that they have a formula they use that takes into account other factors (other than market value).  This is a ridiculous statement because the market determines value and if you, as the bank, have other expenses on the asset, the market doesn't recognize your expenses. It is the asset itself the market is valuing.  There is a range of values inherent in any asset: low to high. The asset manager that follows this type of philosophy is looking to set market value (highest price given current condition in current market).  This sometimes works if the asset has a superb location or other hard to find feature.  Most of the time it doesn't work and the price has to come down. 

 

For buyers that pay cash without an appraisal:  most of those type buyers are not your typical cash investor at all.  These are buyers that are buying a primary residence for the long term and are willing to pay market plus to get that specific asset for its specific attributes that can't be readily found elsewhere. In any given market there are more of these buyers than you would think, but not nearly as many as the asset manager must think!

Message 7 of 7
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