Are Banks Over-Valuing Foreclosures? Will the Bank Foreclosure Bubble Burst Soon?

It used to be that you could get a good deal and save a little money with a foreclosure. Investors or builders could find a home that needed to be remodeled, buy it at reasonable price, bring in a crew to bring the house up to a livable condition and ultimately re-coop their time and investment. That is really not happening right now. There are some exceptions, but in general banks seem to be getting more money for a foreclosure today than the house is worth in its present condition. It is my opinion that this is happening a lot more often than buyers are getting a good deal on foreclosures today in Greater Austin.

With our ongoing low inventory situation in Austin, maybe buyers are just paying too much for foreclosures out of desperation and banks seem to know that buyers will pay more than a home is worth under these market conditions. This is happening all over now. When you can get a home that is not in foreclosure and in good condition for the same price as a home in foreclosure that is not in good condition--we have a problem. But if that is happening--are we in the Real Estate community letting our buyers pay too much for foreclosure properties? Properties that may take ten's of thousands of dollars to repair and put back into a livable condition? Should we be doing something different in the Real Estate community to bring banks into check?

One agent recent said to me "If banks can get that kind of money for their foreclosures, more power to them!" It's a cavalier attitude, I think. Our job is to protect the interests of the client. In some cases, protect the clients from themselves. So, maybe his clients are the banks selling the properties and getting a buyer to pay more than a house is worth may in fact be his job. I certainly hope so.

Bottom line: Buyers beware. Just because it is a foreclosure, does not mean it is a good deal or that it has been priced to its current market value. Better to get the numbers and do the math for repairs and remodeling and determine for yourself if it is a good value. The days when shopping a foreclosure for a good deal seem to be on hold until buyers start pushing back and demand that banks price homes to market value in their present condition.

Bankers Note: Market Value on a home that needs $10,000 worth of wholesale repair work is not $10,000 less than market value. Time and money are not free and if an investor can buy a home that requires no work Vs a home that costs $10k less and $10k investment to bring it to the same standard, why would they give their time and money away to the bank for the work that they have to put into the home? You can do the math, and Realtors will make it our mission to make sure buyers do the math as well.


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