Humans make mistakes, we all have done it. Sometimes though you run across mistakes that not only makes you scratch your head, but also costs innocent people a lot of money.
A bank recently made that mistake in a Mesa condo community, and that mistake lead to another and now the whole community will be suffering. There is a two Mesa condominium communities that are right down the street from each other. For this post we will call them Tree 1 and Tree 2. While the two communities are right down the street from each other, they were built about 20 years apart. Looking back over the last year you can see that Tree 1 Condos, which were built around 1980, are selling for about $60,000 on average. But down the street at Tree 2, which was built around 2000 as a gated community with a beautiful new pool, condos sell for closer to $150K.
So a few weeks ago a bank takes a new foreclosure property from Tree 2 and puts it on the market to the public. The agents and appraisers do a BPO (Broker Price Opinion) on the property and the condo in the $150K community goes on the market for $66,700. No need to say, that condo went into pending pretty quick. Now bank 2 has a unit in Tree 2 and they want a BPO done on the property. When we prepare BPOs for the bank, the bank wants us to only use compatibles from the last 90 days. If there are not enough comparables from Tree 2 they require us to go outside the development and look for more. We advise the bank to be careful, there are two areas close to each other, but they are not comparable properties.
Despite our warning, the bank sees the above mentioned unit that sold for $66,700 and the other Tree 1 units in the mid $50’s and puts the new foreclosure property on the market at $59,000, which is about $80,000 less than the actual value of the property. Again, needless to say the first day the unit is on the market the phones have been ringing off the hook. Not only is this mistake costly for the banks, it is also costly for the individuals living in Tree 2. There are now two properties in a row that sold for less than half what their fair market value is because of a sloppy mistake that could have easily been avoided.
Now what about that next round of bailout money for them banks.
Tagged as:
BPOs,
Pricing
Here are a list of the top five things a bank will consider when setting a price on a bank owned foreclosure.
1) What do the three appraisals come back at?
When a bank takes a home back in foreclosure they will typically get three appraisals done or Broker Price Opinions (BPO’s). One will be done by the agent listing the property, another will be done by an appraiser and a third will typically be done by someone outside the process such as another agent who is hired by the bank to give an estimate of the value for the home. The bank is usually going to put the home on the market at the middle of what the three appraisals show.
2) Condition of the home
What condition is the home in today and what repairs are needed? The bank will consider two possibilities, selling the home in the current condition or possibly making some improvements. They want to know what repairs need to be made to the home. Two things the bank may take into consideration are if the home needs any repairs made to meet FHA loan standards and if the repairs are easy and will add a lot more value to the home. If they can make large improvements in the value and do so with a small cost they may go ahead and make the repairs.
3) Other bank owned properties in the area
The banks will be looking to see how many other foreclosed bank owned properties are in the area. They want to move their home as soon as possible and know the more direct competition they have the harder it will be for them to move theirs unless it is priced aggressively. Areas on the outskirts of the major population centers like Maricopa and Queens Creek in the East Valley typically have more bank owned properties going into foreclosure. This is why you will often find a better deal on a bank owned property in the more remote locations.
4) Rapid declining market
When the bank gets the appraisals they often ask for a quote on a 30 day sale, 90 day sale and a 120 day sale. If the market is a rapidly declining market then these numbers will show the bank it needs to be moved quickly. The quicker it needs to move because of the market conditions the more aggressively it will typically be priced.
5) What do they own the house for?
What the bank owns the house for will often factor into what the home goes on the market for. If the bank owns two almost identical properties, but they are into one for twice as much as the other, they are much more willing to negotiate on price on the one they own for less. This is one reason your Realtor should always check what the bank took the property back for.
Banks are going to use all five of the above criteria to help determine the sales price of the home. Banks do a good job at pricing their homes and often come on the market at 20% to as much as 30% lower than owner occupied traditional sales will be listed for.
Tagged as:
Pricing
