Price the REO properties below market value; list to sell immediately.

For home buyers and real estate investors, the opportunity to purchase REO assets presents an incredible opportunity.  Few expect the downturn in the San Diego housing market to continue for any significant period of time.  The decline in average home prices is primarily a result of the wave of foreclosures.  Non-distressed properties in most neighborhoods are still selling at higher prices, much closer to the recent highs. 

The banks and their asset managers, in their near panic to unload their REO inventory, have created a self-fulfilling prophecy of declining home prices.  Competing with each other and even with themselves, practically every newly repossessed foreclosure property is priced below the last.  The asset managers are rewarded for unloading properties quickly, and their obligation to maximize the value of the bank assets often takes second position to speed of sale.

The result is a chaotic situation where home buyers and investors are racing to submit bids for foreclosure properties.  In less than a week, most newly listed foreclosure properties have received multiple offers, dozens of offers, sometimes thirty or more.  Does that sound like a symptom of a declining housing market?  We don't think so.

The chaos at the financial institutions will clear up as the last of the sub-prime mortgages from recent years are removed from the books.  As stability returns to the loan markets, the opportunities for home buyers and investors to pick up houses, condominiums, and multi-unit properties at below-market prices will dry up.  The last wave of sub-prime mortgages are being cleared from the books at the financial institutions in 2008.  Smart investors are buying real estate now in expectation of the subsequent shift to appreciation of the housing market.

How can you take advantage of foreclosure (REO) opportunities:

1)  Be prepared to move quickly when a foreclosure property comes on the market.  A loan pre-approval letter from a qualified lender will be required with any offer to purchase.

2)  Know the relative market values and expect to pay above list price.  As mentioned above, the banks are pricing their properties below market value, often as much as 25% below the most recent sale.  The financial institution's goal is to receive multiple offers, and at these asking prices they are succeeding!

3) You need a qualified Buyers' Agent to help you.  There are multiple addenda and specific documentation required by the financial institutions as a condition of the sale.  These can be complicated, and they are drafted in the bank's best interest.  A Buyers' Agent will represent your best interests and keep you clear from pitfalls presented by the bank and the bank's listing agent.  Best of all, the Buyers' Agent is paid by the bank after completion of the sale.  The buyer does not pay any real estate fees to the Buyer's Agent at a foreclosure sale.   If you don't have representation, you are asking for trouble and will often end up paying for the mistake.

4) Expect to wait, be patient, but be prepared.  The banks and asset managers are notoriously slow at responding to offers, and equally slow with completing their end of the purchase transaction.  Many buyers lose patience, and others think that the bank's failure to obey the written timelines gives them the right to disregard their own obligations.  But, in fact, the banks will hold the buyers responsible for monetary penalties associated with the Buyer's delay.  Your Buyers' Agent will keep you on track and will help expedite the transaction with the bank's agent.  Remember, the seller is a bureaucracy, not an individual.  Only your personal Buyers' Agent will have your best interests at heart.