Foreclosures aren't being given away

I've been working with several buyers lately interested in foreclosures. The buyer's assumption going in to the process is that because the properties are foreclosures, they can be bought for pennies on the dollar. Unfortunately this isn't the case. At least not in Myrtle Beach.

I think the main reason for this idea is the old saying that 'banks don't want to be in the property owning business'. And that's true. But to take that idea and stretch it to assuming that banks will sell property for pennies on the dollar is a big mistake. I should also point out that maybe banks in Toledo Ohio or Scranton Pennsylvania, just for example, might be willing to do this, but not in Myrtle Beach SC.

To demonstrate this fact I looked up all foreclosure sales on our local MLS. I simply determined the difference between the asking price of the property and the final selling price. I then totaled up the percentage differences and divided that sum by the number of entries. I'll be the first to admit I'm not a statistician, but I think the formula gives a pretty accurate answer. The results were not surprising to me, but they might be to buyers.

For the month of January 2009 (Jan 1-Jan 31) the average difference between asking and closed price was...... 4%. That's right, banks on average sold property for only 4% less than they began the process with. For the last quarter of 2008 (Oct 1- Dec 31 2008) the average difference was 5%.

Now we all know about the people who said they got a great deal on a foreclosure. Some folks claim up to 50% off. A couple of points to consider. People have a natural tendency to exaggerate. And while it is possible that some limited cases were extreme discounts, the average is clearly not that high.

Another point to reflect on. Most properties that sold at big discounts were probably severely distressed. By that I mean the property was in a condition that most people wouldn't want to buy into. Investors and people with a lot of experience in rehabbing properties would find this attractive but the average buyer would be in way over his or her head.

Gives you pause for thought, doesn't it? By the way, I also found several instances where the final sale price was actually HIGHER than the asking price!! Why? Probably buyers became involved in bidding situations while the bank sat back and watched the offers rise. That's a good sign for the housing market. Every property has a natural point at which it is priced correctly. That is priced for the market. Sometimes multiple buyers become aware of the property at this price and multiple offers appear.

So, what's a buyer looking for a bargain to do? Your first step should be to get pre-approved by a bank for a mortgage. Next, contact a Realtor and explain to them what you want to do. When a Realtor learns you're pre-approved for financing he'll know you're serious about buying. Once you've consulted with the Realtor about what you're looking for he'll go to work for you and find you the great deals you want. But don't blame the Realtor if the banks aren't willing to give the property away for the discount you think is appropriate.

If you're interested in buying property in the Myrtle Beach SC area please contact me and I'll be happy to discuss your ideas with you.