Why Bank Foreclosures are NOT your best deal, and where to get the best bargain!

(February 11, 2016 )

Written by:  Mike Seiler

There's a nasty little word floating around the real estate market!  'Bank Foreclosure'.  

In certain markets you may be able to get an awesome deal on a bank sale, but that usually isn't the case in our local real estate market.  If you want to get the best deal on a property, especially in the Owen Sound / Grey Bruce real estate market, please read on...


Lead generating websites use the term 'bank foreclosure' to draw people in, but the truth is, if you want a great deal on a home, it is likely not going to be from a bank foreclosure! 

THE BANK SALE

Firstly, let me state the obvious.  When a mortgagee (the person borrowing money to purchase a house) breeches their contract, the mortgager (the lender/bank) takes the house back, evicts the mortgagee, and puts the house up for sale.   The bank will proceed to hire a real estate brokerage to sell the property.  

Here's the catch!  Under most circumstances, the bank has a legal obligation to try to get as much money for the property as possible so that once sold, any equity the borrower has in the property can be paid back to them (minus the mortgage, charges, taxes, fees etc).

In my experience, when listing bank foreclosures the bank will often price the property for sale higher than I suggested.  Often they will not accept offers in the first few days to ensure that all parties have an opportunity to view the property and to draw up an offer.  After a period of time (depending on the market norm) the bank will evaluate and make incremental  price adjustments.  This is usually around the 5-10k mark.  If the property hasn't sold after a period of time, and if the mortgage was insured (CMHC, Genworth) the bank will then turn the house over to the insurer for payout.  

In Canada, if you have less than a 20% downpayment on a property you will need to have your mortgage insured.  Under most circumstances you need a 5% downpayment to get any mortgage. 

With the downpayment percentages, you can see why a bank would only try to sell a property to a certain point before turning it over to an insurer. 

THE INSURANCE SALE
 
Here's where things get a bit (and just a bit) more interesting.  If the bank fails to sell a property that had an insured mortgage, they will turn it over to the insurer to cash in. 

While the insurance company would like to get as much money as possible, they are the ones who will eventually let the property sell for the lowest price.  Every day they hold the property is money out of their pockets.  The truth is, they are very wealthy and they would like to liquidate the property in a timely manner. 

One of the biggest problems with bank/insurance sales is that you are buying a property without any guarantees or warranty.  Often times these homes are in poor condition with major work needing attention.   A good real estate agent can help provide history on the property, and a thorough home inspection will help discover issues, but there is always an increased risk in purchasing these homes.  

THE DISTRESSED SALE

Life can pull us in many directions!  When it does, we may be forced to liquidate our assets (like our home)  Sometimes it'll be a divorce, or a job relocation, or health issues.  At any rate, these 'homes for sale' can prove to be some of the best bargains on the market as these homes will often be in good condition with the vendor wanting to sell quickly (even if it's at a loss).  There's an opportunity to negotiate in all the appliances, furniture and flexible terms and conditions.  However, to get the best price it's wise to be sensitive to the needs of the vendor. 

THE ESTATE SALE

When a home is passed on to family members it is often listed for sale.  Usually there will be 2 or more parties splitting the proceeds and often these parties don't live in the market where the house is for sale.  While these parties want the home to sell for the most amount of money possible, they usually don't want to sit on the house and carry the expenses and liabilities of it.  A clean offer can usually translate into a great deal for the purchaser. 

THE NEWER RE-SALE HOME
  
Something we often see in the Owen Sound Real Estate market is a newer home being sold for LESS than it cost to build it.  

It's kind of like buying a new car!  The minute you drive it off the lot, it loses value.  We often recommend that instead of building new, you find something that was recently built!  

Often times people spend tens of thousands of dollars in upgrades (landscaping, finishing basements, appliances etc) which they don't recover in the re-sale. 

Of course, when you build new, you can build exactly how you like and that may be worth the risk! 

So what's the best way to tap into the above deals?  Whether it is a bank foreclosure, an estate sale, or a distressed sale, the best advice is to find a real estate agent who is experienced and fully immersed in your local real estate market.  You usually won't see 'distressed' or 'estate sale' advertised on a listing, but a good Realtor® will know when this is the case!  When you choose to work with The Seiler & Barfoot Team, you get 3 full time agents working for you! (Brad Barfoot, Broker | Mike Seiler, Broker | Terri Cardinal, Sales Representative).  Get in contact with us and let us know what you're looking for.  We will keep you in the loop on all new listings in the market that match your needs.  

#bankforeclosure #owensound #realestate