Competition in the Real Estate Market

As a Realtor working with buyers and sellers every day, I run across a lot of different stories that seem too good to be true. In most cases they are too good to be true.

Buyers will say they hear about homes being purchased at .50 cents on the dollar, which would be very rare even on the courthouse steps. When a home is foreclosed on by the bank it goes to sale on the courthouse steps in the county in which the home is located. The foreclosing bank’s trustee will put in a minimum bid. The cash investors at the sale will decide if they wish to outbid the bank or pass and let the bank have it. If the home goes back to the bank then it will be emptied and relisted with an REO agent. If the bank’s minimum bid is low then the investment companies will bid but if high they will abstain.

Where does competition come in? In the first scenario the bank’s asset manager will decide if he wants to sell the home in rough condition or if he wants to rehab the property with minimum of paint and carpet. If the asset manager elects to price the property 10 percent to 15 percent under market value, then a bidding war will generally ensue on the open market. Market forces and sometimes just plain hype will bring a reasonable price for the home. Many asset managers want to make sure the home is fairly exposed to the market so they won’t review offers until a minimum time period passes.

In the second scenario the investment companies will generally bid each other up.

In Orange, Riverside, Los Angeles, and San Diego counties there are a good number of “regulars” at every sale. These regulars are seasoned professionals who know the market and are able to buy several homes with cash at the sale site. All of these people are savvy and are looking for a reasonable profit after they rehab the property. These investors have regular rehab crews that can do the rehab cheaper than you or I.

The point is that they don’t want to buy a foreclosure with any less than about 15 percent profit after rehab. That being said, many investment companies are getting stuck with losses because the banks have not responded to the current market conditions and the investors are buying too high in order to keep crews busy.

Again we see good old-fashioned competition at work. More than ever you need to use an experienced Realtor to help you compete in this market place.