09 Dec Not All Foreclosures are Deals. Not All Properties on the MLS Are Overpriced.
Many investors believe that they need to buy a foreclosure to get a deal. Many of these investors also believe that properties listed by a Realtor are not deals. That is simplistic thinking.
Sure, many foreclosures are offered at a discount to fair market value. However, there can be multiple bidders on a foreclosure, and that will drive up the price. Many foreclosures have the utilities turned off, so it can be difficult to determine if the systems in the house work properly. Some banks will not allow a home inspection contingency, which means that an investor cannot back out of the contract if they find adverse inspection results. Banks are typically not required to disclose anything about the property.
Many foreclosures require more work than some investors are able to handle. I’ve made that mistake myself in my younger days – I ran out of money during the renovation because I underestimated the cost and scope of work. I had half-renovated properties sit vacant and quiet for months while I tried to come up with the money to finish the projects.
Some foreclosures are still occupied, and an investor may not be able to gain access until they evict the occupant after the property is purchased. I knew one investor who bought a property at a foreclosure auction, and it took 13 months to legally remove the occupant. The worst-ever case was that of Guramrit Hanspal, who made only one mortgage payment in 1998 and then gamed the foreclosure and bankruptcy systems to stay for 23 years without making a housing payment. The investors who bought the foreclosed house spent six figures on property taxes, insurance, and legal fees while Hanspal lived there for free.
Some bank asset managers overprice their foreclosures, leaving them to languish on the market.
Just because a house is listed on the MLS does not mean that there will be competition for it. Some properties on the MLS are lucky to receive one offer – yours. Even if there are multiple offers for a house, your agent or the listing agent may be able to glean valuable information to give you the edge in negotiation. My wife and I have been in several multiple offer scenarios where we offered less than the asking price and received an accepted offer. Some sellers don’t want a lot of strangers traipsing through their house, so they may be willing to accept your offer the day the property is listed.
With a listed property, you can include a home inspection contingency. That allows you to back out of the deal if you find unacceptable inspection results. Armed with an inspection report and perhaps a contractor estimate, you can negotiate a credit or price reduction with the help of your agent. When you’re under contract for a listed property, you have time to think. Typically, there is clearer and more frequent communication between the seller and buyer via their agents. Communication makes transactions go more smoothly.
Some properties on the MLS are listed over fair market value. Some are listed below fair market value. Sometimes paying the asking price nets you a great deal.
Some listed properties have been under contract multiple times, only to have the buyers back out. The seller may be fed up and ready to accept your offer just to get it over with. I met Robert Kiyosaki in 2004. He said one of the best questions to ask a weary seller or listing agent is, “What will you take?” Then be quiet and listen to what they say.
The truth is that deals are everywhere. Foreclosures, homes for sale by owner, short sales, auctions, tax sales, and properties on the MLS all offer opportunity.
The truth is that some properties can be money pits. Foreclosures, homes for sale by owner, short sales, auctions, tax sales, and properties on the MLS can be more trouble than they’re worth.
Look everywhere for deals. You reduce your risk and increase your wealth when you know your numbers and your capabilities.
Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania. He became a full-time real estate investor in 2004 after serving in the U.S. Navy. Tai has made colossal mistakes in investing (and learned some things along the way). He has helped hundreds of homeowners avoid foreclosure through successful short sales. Check out Tai’s books on Amazon.com. Tai may be available for coaching and speaking engagements on a variety of real estate topics. Send an email to tai@investandtransform.com.
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