Buying a bank-owned home
A bank-owned property in Patterson, CA.
TEXT OF STORY
Tess Vigeland: I drive by the Rose Bowl in Pasadena every so often -- it's not far from my house. One area caught my eye the other day. It's about half a mile from houses that cost a million dollars or more.
There's this one cute little ranch for sale, but the owner says he's probably taking it off the market this weekend. Why? It's surrounded by a sea of bargain-priced homes that are in foreclosure.
The same scene is playing out across the country, including Sacramento. We return there for a story from Marianne Russ about sellers struggling to beat the bank.
Marianne Russ: When my husband and I bought our first home a couple of months ago, we looked at a dozen or so houses. Every single one was bank-owned. It wasn't a conscious decision; it's just the prices were so much lower.
But if you have to sell your house right now, that's not the kind of thing you want to hear.
Alan Waggoner is a Realtor in Elk Grove, a city near Sacramento.
Alan Waggoner: In the real estate world, as I sometimes will share with people, there's always a reason for someone to sell and that always reason is death, divorce and transfers.
Waggoner says the toughest part of his job is convincing an individual seller his house is probably worth a lot less than he thinks it is:
Waggoner: And when you say, "But I've got $30,000 worth of upgrades, I've got $100,000 worth of upgrades, I've got gold-plated widgets in my house." No one cares that you've got a gold-plated widgets, because the bank is $20,000 less than what you think your house is worth. They can buy those widgets.
To prove the point, Waggoner and I do a little experiment. He checks the regular listings in Elk Grove. The average price is $447,000. Then he does the same search, but includes bank-owned homes and short sales -- those are the ones in pre-foreclosure. The total inventory more than doubles and it knocks the average price down to $370,000. The bank-owned homes have pushed the average price $80,000 lower.
Michael Freeman: Hi, I'm Mike, I'm the agent. Come on in. What are your names?
Real Estate Agent Michael Freeman is doing what he does most Sundays: Holding an open house in this three-bedroom Sacramento home.
Freeman has staged the immaculate home: cookbooks on the counter, teddy bears in a pink bedroom upstairs. The problem is, he's competing against a four-bedroom bank-owned home just two houses down. Even though that house is bigger, it's being offered at $40,000 less.
Freeman: We have bank REO properties that are coming on... they're trashed and they are artificially driving the price down, because it's not really what the market would be bearing, but the buyer is going to take advantage of that.
To be honest, that's what my husband and I did, but our house was like many of the bank properties we saw: baseboards and closet doors stripped off, holes in the nicotine-stained walls, bird poop on the kitchen floor and mold growing under the sink.
Freeman and I decide to check out the bank-owned home down the street to see what shape it's in.
Freeman: You're in for a treat right now
There's stained carpet, crayon drawings on the walls and a stove caked with grease that's beyond salvaging, but that smells like opportunity to Patricia Galdamez who shows up for a tour. She says her husband can fix it up:
Patricia Galdamez: It'll take time for him, because you know, working overtime and blah blah, but if we can do it, I just say, we can save a couple thousands.
But there is hope for individual sellers. Agents Freeman and Waggoner say they'll have to be realistic and lower their prices, but a furnished, spotless home will always show better and then there are buyers like Jesse Monnier, who's willing to pay a little more for a home that's in better shape:
Jesse Monnier: You know, all this free time for renovations I just don't have and so by the time I had time to make the renovations, I'd still have to live for three years in someone else's yuckiness and I'd still just rather not.
In Sacramento, I'm Marianne Russ for Marketplace Money.