One on my respected colleagues on Active Rain, Renee, posted a very thought provoking blog (at least thought provoking for me) at http://activerain.com/blogsview/1582335/las-vegas-nv-area-reo-is-not-disappearing-it-s-just-emerging-as-another-life-form-
This post which is followed by others comments had me asking, "Investors buying foreclosures before the bank takes them back - is this good for the marketplace or bad?"
As both a realtor and investor, I probably have a built in bias, but here are my thoughts and I would be interested in your thoughts and viewpoints. I am also sure the process for these properties being sold vary from state to state, so I will talk about Pennsylvania and what I know in my state. Properties in which lien holders foreclose are sold at a County Sheriff Sale. At the Sheriff Sale the attorney for the lien holder reports the upset price or the price that must be bid in order for the property to be sold. The lawyer then basically gives the costs of expenses which is the opening bid. For example, property 123 ABC Street, Anywhere, PA. Upset price is $98,000. Opening bid is $2354.26. The question is, "Will anyone bid $98,000? If someone does there may be others who also bid. It basically becomes an auction style sale from this point forward.
If an investor purchases this property and he or she has done homework to make sure the lienholder buying the property is in first position, then there is probably equity in the property. If the property does not sell at the Sheriff Sale, then it eventually will become an REO and most likely will return to the market in the future.
Now the question is, "If an investor purchases the property and it does not become an REO, is this good for the market place or bad?" As I have already stated, "I believe it is a good thing." Here are my reasons why:
- Investors who are buying the properties are helping bring stability back to the marketplace.
- Investors are either cleaning the properties up or rehabbing them to make them more habitable.
- Investors are helping keep the market from plummeting more. We have been hearing for some time that prices are more affordable today than for many, many years.
- In the long run, having a more stable market will benefit the most people. People who already own homes do not want to see their home prices continue to decrease.
- Investors are often more locally situated and may know the true value more than outside area realtors offering BPO's to banks.
- The market place actually sets the value when the investor relists the home and a buyer decides to buy it.
- Any buyer is free to go to the Sheriff Sale to purchase a property. However, for the average buyer, these sales are too risky and therefore, they choose not to purchase in this manner. No home inspection is allowed and often the buyer of these property may not have been inside the home. It is being bought sight unseen.
If an investor buys or the bank offers it as an REO, is there a difference to the marketplace? I am not sure there is. I am not sure that a buyer is adversely impacted either way. I know that an REO or an investor owned property is one I prefer to have my buyer clients interested in, rather than a short sale.
What do you think?