Foreclosure Investing 101 – Foreclosure Auction – Part 3 of 8
Why Foreclosures Sell for Less Than Market Value:
In real estate, you hear the term "market value" quite a bit when discussing properties. Everyone seems to know what market value means, Most would say "it is the price that a given asset or property would fetch in the marketplace." and they would be correct.
But you cannot stop there..
Market Value is the price that a given asset or property would fetch in the marketplace, subject tot the following conditions:
- Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade.
- A reasonable time period is given for the transaction to be completed.
Given these conditions, an asset’s fair market value should represent an accurate valuation or assessment of its worth.
The foreclosure process and resulting auction do not come close to meeting the above criteria of a market value transaction. In fact, they are structured in a way as to virtually guarantee the lowest possible sale price. The following table will help illustrate my point:
| Market Value Sale | Foreclosure Auction |
|---|---|
| No seller or buyer duress | Forced Sale |
| Buyer & seller well informed | Information difficult to locate |
| 30-120 day marketing period | 5 minutes or less selling time |
| Financing on typical terms | Cash on the spot |
| Owners agree to move | Owners or tenants may have to be evicted |
| Marketable Title | No Title Guarantees |
| Warranty Deed | Trustees Deed |
| Seller Disclosures | No seller disclosures |
| Property Inspection | No inspection |
| Yard Sign | Never a sign |
| "Homes for Sale" ads | Notice of Sale filed with county recorder |
Many investors would look at that and say "no thanks". "Too risky, and where would I come up with all that cash anyway." It is that attitude which explains why there are so many deals to be had at the auction.
But what about the risks?
Granted, there are risks associated with purchasing property at the auction. But you can overcome the risks of bidding! At Real Estate Investment Firm we have worked tirelessly to help open up the foreclosure market to the average investor. By providing our clients with detailed property status tracking, property research, title analysis and insurance, value assessment, auction bid calculator, access to foreclosure financing and much more we have helped our clients minimize the risks while maximizing their profit.
