What You Should Know About Buying Foreclosed Property in Michigan

Dated: 04/22/2018

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Foreclosures

Our current Southeast Michigan market still has some foreclosure, HUD or REO properties for sale, although we aren't seeing the volume of foreclosures as seen a few years ago.  REO sales could include HUD properties, Freddie Mac/Homesteps, Fannie Mae/HomePath, and other lender-owned properties.  

When buying foreclosed, foreclosures, bank-owned, HUD, Fannie or Freddie properties, buyers should know more about the seller.  Not the bank's actual name, because that really doesn't matter.  All selling banks' goals and methods are essentially the same - sell the asset quickly and for as much money as possible, with as little emotion as possible.  

First, the term REO stands for "Real Estate Owned," a term banks use for properties that had been used to secure a mortgage in default, resulting in ownership of the property to revert to the mortgage holder.  The home is an asset, but as long as the bank holds the title the property is costing the bank more money.  The bank is now responsible for property taxes and maintenance, and making sure the home does not lose further value through vandalism, theft, neglect, the elements, etc.  The bank wants to get rid of the house quickly, but on the other hand, the bank is going to try to get the most money for their asset as possible since they have already lost money.  In other words, they are not going to give the property away to the first low-ball offer they receive.  

The banks employ asset managers, who hire real estate brokers to list and sell the house.  The asset manager's job is to determine the home's listed price, consider and accept an offer, and get the transaction to the closing table as quickly as possible.  

When determining the listing price, the asset manager takes the home's current market value and then adjusts the price to reflect the home's condition or need for repairs.  The asset manager also agrees to any price drops or changes in the listing when necessary. 

These homes are being sold as-is.  The seller will usually make no repairs in order to get the home to pass a city or FHA inspection.  The buyer will most likely be responsible for accepting the condition of the property and making any necessary repairs after the sale, sometimes before he can even move into the property.  

It is important to remember that while the asset managers are real, live people, the actual sellers are the banks.  They are institutions considering a business deal, not a warm-blooded seller with an emotional stake, and they are unlikely to be swayed by a buyer's hardship.  Sending your offer with a story about how it would be your family's first home and how you've saved for ten years to be able to make this less-than-full-price offer will have no influence with the bank.  The bank knows what is wrong with the property and feel they have already priced it to reflect the lack of water heater or to adjust for the broken windows.  Their concern is only (a) your offer price is acceptable, (b) your terms are acceptable, and (c) you are a qualified buyer able to complete the purchase within the timeline established.  

When negotiating with banks, it's best to consider this a business transaction and take the emotion out of it.  Each transaction is unique, so you may (or may not) get a chance to enter into a negotiation.  As a Buyer's Agent with many years of experience successfully representing REO and foreclosure home buyers, I can help you determine a fair offer price based on comps and by researching past sales, help you put together a complete (and acceptable) offer package, and help you get to the closing table.  

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Rhonda Wright

For most people, a home is one of the largest purchases they will ever make. My clients hire me to make the process of buying or selling their home go as smoothly as possible. At the end of the tran....

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