Are you frustrated at being unable to find the right property for the right price? Is your search through the classified ads columns turning up prices of properties way beyond your price range?
Most prospective buyers who make inquiries to our office will answer a resounding “yes” to these questions. In this series of articles I will point out where and how to search for properties that will cost you less than the ”market value” or the price that the property is advertised for.
Let’s Go to the Auction
I have found real estate auctions to be a source of good deals. Owners of properties being auctioned are in arrears on their mortgages. The mortgagee, usually a financial institution, is in possession of a Power of Sale document which allows them to dispose of the property to recover their money. Each week the daily newspapers carry a list these properties that are to be auctioned.
The announcement lists the date, time, location of the auction, the properties to be auctioned. The address and description of each property are also listed.
Here is the secret. Before going on the auction market, each property received at least two separate valuations with a “forced sale” value given to them. The forced sale price is a price the appraiser recommends the property will go for in the event the property goes into foreclosure.. The forced sale price is generally 15% to 25% lower than the best market price. Therefore at an auction if the highest bid is received at the forced sale price, it likely will be accepted. A house with a market value for example of $25 million could easily go to the highest bidder for $19 to $21 million at an auction. I have purchased a property below what the forced sale price would likely be. But that is not common these days.
But how do you determine what the forced sale value might be, of a property that interests you? Do your research and determine what similar properties in the area are selling for. Then mark down the price 15% to 25% to arrive at a reasonable bid price. You can contract with a realtor to do the research for you and ask him/her to suggest a forced sale value. If you are hiring the realtor to seek a property for you, he or she will even attend the auction and advise you on bidding. Not every property advertised is auctioned. Often the property is “withdrawn” at the last minute because the mortgagor paid up the outstanding arrears. Therefore it’s best if you have your eyes on more than one property.
Inventories of properties for auction are therefore good sources of real estate below market prices. Take the time and check them out or ask your Realtor to include these in your search for your next property.