It’s hard for many people to believe that in this “down market” there is so much upward pressure on prices. This is not to say that home prices have not come down in the past few years. Nor am I suggesting that there aren’t some incredible bargains available today. But many prospective home buyers call and ask me whether it is realistic to place a $300,000 offer on a San Diego foreclosure house that is currently listed for $350,000. The simple answer is No, it’s not realistic.
The truth is that most properties are listed for sale at asking prices that are close to the current “market value.” A good Realtor will advise their client not to overprice a home in today’s market without hurting their chances of selling. And at the extreme, bank foreclosure properties are usually listed well below current market value. The banks spend a lot of time analyzing the present value of their assets. The strategy of the REO asset managers (the people who handle the foreclosure property sales) is to price their properties for sale 15% to 30% below the current market value. Their goal is to get as many offers as possible in the shortest amount of time. They really want the properties off their books. They aren’t going to waste time waiting for an unrealistic price. They will have other properties to sell tomorrow, and they need the current properties sold today.
Here is just one of many similar replies that my home-buyer clients have received from banks in the past year. This was a foreclosure house in the San Diego neighborhood of Clairemont. My client acted fast (the house was just one day on the market) and and she made an offer that was $3,000 over the asking price of $335,000, putting 20% down on the new conventional loan (not VA or FHA). This would be a considered a “very strong offer’ by ordinary standards. The bank’s agent replied after one week:
From: Bonnie Foley
Sent: Monday, May 04, 2009 5:34 PM
To: Geoffrey Schiering
Subject: RE: Offer – $338,000 with 20% Down. $3,000 over-asking price.
Thanks so much for your e-mail.I have submitted offers to the bank.I just want to let you know where your client ended up in the bunch so that you can advise her.We ended up with 9 viable offers and there were seven offers that were higher and better than her offer.It has been my experience that with the bank having several offers that are more than $20,000 over the asking price that the bank will just accept one of the offers that has been submitted and not counter.
First Team Real Estate
This is not an isolated case. For the past year, almost every new house foreclosure listing in central San Diego receives multiple offers in the first week. Most of these homes are selling at or above their asking prices. Often there are all-cash offers that are above asking price. The banks give preference to all-cash offers. This makes it even more difficult for ordinary people who don’t have huge hordes of cash.
To take advantage of the opportunities to grab discounted homes in today’s market, prospective home buyers should have a firm knowledge of neighborhood property values. When a foreclosure house is listed for $350,000 in a neighborhood where prices had been as high as $600,000 to $700,000 just a few years ago, that’s a good deal. Investors and first-time-home buyers are snapping these houses up as quickly as they can. There are exceptions, and a good San Diego Realtor will point those out. But no, a $300,000 offer for a $350,000 foreclosure property does not have a realistic chance of success in today’s market.