Lately I've been showing a lot of foreclosures. I would say about 90% of them need work. And when I say they need work, I mean they need kitchens replaced, basements gutted and finished, and a lot more. These are properties that have been left in total disrepair, or have been destroyed by previous homeowners.
There are a lot of foreclosures coming on the market in our area. And there are Buyers interested in purchasing them. The problem is that it is nearly impossible for the average Buyer to purchase one of these properties.
For example, right now I have a Buyer that is interested in making an offer on a foreclosure property. The comps show that the home is listed at current market price. However, in submitting an offer, how can any Buyer make an offer at market value, full list price, for a home that might need $20,00 - $30,000 of work?
I know the bank is going to come back, not even with a counter offer, declining our offer. They will state that they have an appraisal and comps to support their price.
The problem with banks and bank owned property is that they just don't give any merit to the fact that people have to put several thousand dollars into one of these houses just to make it liveable. This is particularly the case with short sales.
Further compounding the problem, lenders don't offer the necessary programs to make these types of purchases realistic.
It has always been difficult for appraisers to make "condition adjustments" on appraisals. In my opinion, if banks are going to try to get the full appraised value, they need to be willing to give or lend Buyers the money for necessary repairs.
It sounds crazy, but what Buyer can come up with a down payment, closing costs, and then still have the money to make major repairs?
How would you solve the Foreclosure Conundrum?
Tim McIntyre, GRI
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