How Foreclosures Are Priced

In this kind of market, we are seeing many more foreclosures than we have in the past which often leaves us wondering not only about the home itself but why it is priced lower than homes in the area. Realtor.com helped to shed light on how foreclosures are priced, here are a few points they mention...

First thing is first, once the lender takes possession of the foreclosed home, while there are many steps to be performed before the home goes on the market, a Broker’s Price Opinion (BPO) is prepared.

• The BPO is prepared in a similar way as an appraisal. A report is run with homes currently on the market as well as any comparable sold properties.  When the market value is established, the asking price can be determined. This is done by calculating what work needs to be done to bring the home up to standard.
• A requirement in the last section of the BPO, is for the prospective listing agent to provide an as is value, repaired value and a 30-day value. The 30-day value Is an opinion of what kind of offer the lender should receive within 30 days. The offer, or amount of the offer, can vary greatly from other surrounding homes, depending on the market conditions for that particular neighborhood.
• An asset manager typically orders one more BPO and appraisal before a pricing decision is made. Most foreclosures go on the market priced at par value excluding repair costs.

Do Bank Owned homes always need a lot of work?

• If you see a home on the market for $175,000 in a neighborhood of homes priced  at $200,000 you should have a great idea of how much work is needed.  Typically, the list price of the bank owned listing is priced accordingly that is why it is such a great price. Repair costs are typically estimated by using a professional at standard cost. These estimates are typically the buyers responsibility.

What if there are multiple offers submitted on a Bank Owned property?

Here is what you can expect:

• Say you decide to place an offer but find you are up against another offer, which offer will the asset manager be more likely to favor? If the offers are close in price, an owner over an investor will be chosen. Cash over finance unless the asset manager’s bank is being used. No inspection over inspection.  Needless to say, the easier path, with the least amount of bumps in the road, is what will be chosen in most cases.

Try to remember, the pressure an asset manager can be under is escalated. They not only have to get the most amount of money for the home in foreclosure they also have to sell it as fast as possible. What a conflicting roll when the lower the cost the faster the sale! 

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