A bank owns out a house that just came out of foreclosure in my area, why did it go from 43k to 12k?

Question

It was last sold in 2004 for 43k. Now it is priced at 12k. The realtor stated that the house is priced accordingly and that it's still "VERY" negotiable. How would he know that it's so negotiable?

*The house hasn't been advertised yet. He told me about this house because I was interested in another house that was already sold.

It was sold @ 43k because I checked the assessor's records.

Answer 1

My guess as to why it went from 43k to 12k would be primarily due to condition. I could see a 10% or maybe even a 20% decrease due to falling values over 3 years and maybe a similar decrease if the neighborhood degraded significantly over the same time period.

The overwhelming reason is probably condition. Imagine a house with all fixtures ripped out, plumbing (sinks, faucets, tubs and toilets), lighting, kitchen cabinets, appliances, etc. It would cost a pretty penny to replace all of that stuff, maybe $30,000 ?!?!?

Could also have damaged plaster/lathe walls, could have asbestos, could have any number of things that were discovered or happened to it. Could have been abandoned and now have water damage and crack whores. Who knows.

Caveat Emptor -- Let the buyer beware!

Answer 2

How would he know the price? I find it unlikely that a house would go from 43K to 12K in 2 years absent some very serious damage. In order to understand this, you have to understand the total foreclosure process. Where the property is at during that process will determine the price as much as the condition of the home.

First, there are several types of foreclosures. There are tax and other municipal foreclosures, there are judgment foreclosures and there are first and second mortgage foreclosures, which are very different.

Before I discuss the various types of foreclosures, lets talk about the process. The foreclosure process involves issuance of a notice which will include the amount of the outstanding debt at that time. This amount can go up significantly before sale due to taxes, carrying costs, maintenance and legal fees. The realtor may be basing the "price" on this notice.

At the end of the foreclosure process, there will be a sheriff's sale. Prior to that sale the property will again be advertised in a local newspaper with the amount of the debt included. Again, this may not be the total debt but for it to be nearly 1/4 of the total debt is not likely.

There are also second mortgage foreclosures. If the second mortgage forecloses, the property is still subject to the first mortgage and that amount must be paid prior to taking title. Similarly, if the property is being sold in a judgment foreclosure, the property will still be subject to any mortgages, liens or taxes.

At the sheriff's sale the bank will bid its interest. Only in the event that no other bidders appear and outbid the bank will the property go to the bank. Thus, many houses that are extremely underpriced sell to a third party at sheriff sale and are never held by the bank. In the event the bank does take the property, it is often turned over to a government agency (HUD, FHA, SBA, USDA) that guarantees the loan. If that is the case, that agency is then responsible for the marketing of the property. Regardless of who markets the property, the first step taken is to get a broker price opinion (bpo). That tells the seller what the property is worth. Regardless of what is owed on the property, once the bank owns it they will want to get as close as possible to the price it is worth. They don't sell homes for pennies on the dollar just to get rid of them. They then list the property with a realtor for sale as any other home. You will notice that it is a foreclosure because the listing will usually say Bank Owned or Corporate Owned. They will almost always say AS IS seller will do no repairs and many time require cash to purchase.

The short of all of this is that 12K seems to be very low to me. It happens, but banks typically price homes competitively. If the property is priced at 12K, that could be a great bargain. Do your research.

Good luck.

Answer 3

Banks are facing a liquidity crunch right now. Meaning, the owners of many homes of stopped paying their mortgages and the banks now own the homes. Banks are NOT in the business of owning real estate, they are in the business of lending money. So, they have to unload those properties in order to get their money back. Sometimes they will even take a loss. Chances are, whoever owned the property before, paid a their mortgage payments for at least 2 years before they left...so the bank just wants to their share of the money out. It's sort of like saying..."Hey, these folks can't pay and I can't find a buyer! If you take over the mortgage payments at this point, you can move in!" Not a bad deal at all.

Answer 4

The bank is probably going to lose money on the deal and they want to get rid of it before the property taxes are due. Also, there is probably hidden damage, so have the house inspected prior to purchase. People who let there property go into foreclosure normally don't take good care of their stuff.

Answer 5

That is a huge hit on the property's value. I can only assume that there is some hidden repairs that are needed that the bank doesn't want to take care of. Make sure you do thorough research on the property before even considering it.

Hope this helps...

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