The Madness Fire Is On And Banks Pour Oil On It
Yesterday James and I went to a listing appointment. We researched comparable sales and market stats and the market value for the home we will be listing is between 250k and 280k. And at the high point of this range I would be a little worried about the appraisal. If you plan on financing a home your deal can easily go south because the appraisal is not high enough, even if both you and the seller agree on the price.
The mad part is a few days before our listing interview with the seller, another home was listed a couple houses down. It is a deed restricted community and all homes are very similar in size and specs. Well, the “competition listing” is a bank owned property and it is listed for $309k! The condition and market value scream $250k maximum. So, what’s going on?
I still very often get requests from prospective buyers to show them foreclosure homes. The truth is the days of when you could get a great deal buying a foreclosed home are gone. We shifted into a seller’s market.
Regardless of how we got there and if it was done artificially, we are there. Inventory is less than 4 months and that is a clear indication of a seller’s market. The prices are increasing at a rate of 15% annually, in some pockets even faster. Homes in move-in ready condition receive multiple offers and bidding wars are bringing back the taste of 2005-2006.
Yes, you may get a good deal buying some foreclosures, but you have to buy 20 of them if the asset management company (if you have a connection there) is willing to package them for you. But trying to make offers on single bank owned homes right now is tough for several reasons:
- Banks started to list their homes high, often above market price (crazy!)
- Condition is often questionable, no property disclosures are provided and you have to rely only on your personal inspection.
- If repairs have been done they are often done poorly, the cheap way, just to make the property look better (not like a dump), be able to pass inspections, and be able to justify the increased list price.
- You will be bidding along with a dozen or two other investors and buyers who still think bank owned homes are a good buy.
- The amount of paperwork is stupendous
I don’t want to discourage you from buying a bank-owned home. I am simply frustrated about the road banks are taking in this market. Taking a quick look at MLS data I can tell you that about 60% of bank owned homes in St Petersburg have been on the market for over 30 days – they are overpriced! After accepting some bailout money they are now also trying to play the market and help drive the prices up and create a buying frenzy. Not cool!
So, what’s next? I don’t have a crystal ball, yall! But if we continue to see prices rise at 15-25% a year, in 2 years we will be in the same situation we were in 2006. And you well know what happened next.