This is the novice investor in me but why would a bank give an initial offer of $80,000+ on a house during the court house steps auction and then turn around to sell it on the MLS for $20,000 a month later? Is this common for banks to sell houses lower than the court house auction offer? Are there flags that may cause Banks to sell immediately?
You're likely seeing a BS "listing" price on the MLS that's meant to get your interest, then it will direct you to an online auction..Hubzu, etc. if so, the listing price means nothing. Also, not sure what you mean by "initial offer" at the auction. Was that just the judgment amount? If so, maybe it's only woth $20k. What price did it actually sell for at the auction?
What I've personally seen is the bank making an offer at the courthouse steps for the amount they were still owed on the property. It is really more about what the loan amount was at the time of foreclosure than the property value.
MLS listing is often different, sometimes for more, sometimes for less, based more on what they can get as advised by agents, inspections, and perhaps even appraisal.
Let us know what you find out on this one.
@Chris Heeren The bank will, at the time of the courthouse auction, set the bid for what is owed on the note. Then after that, they get with the local realtors and come up with a value on the property as to what the property will sell for, which in most cases, less than what is owed originally. The thinking is, that although they are taking a loss on the note, something is better than nothing.
Banks can and do sometimes set the opening bid for less then the amount owed, for a variety of reasons. This is why so many houses sold so cheaply at auction a few years ago. It just depends on the banks strategy, or lack of.
I typically see the bank set the bid for the amount owed to them as the first lein holder. If the bid is not upset, then they will take possession. The banks I've personally worked with will have it appraised and then list it with a agent (local or out-of-town) for the appraised value. Once the property is on the market, the asset managers that I've worked with can accept an offer that's within 90% of the list price. Anything less, has to be presented to the higher ups for approval. Once again, that's just my personal experience.
@Chris Heeren there are a few reasons for this. Many have already been explained by others but one thing that hasn't been said is that a lot of properties have mortgage insurance on them. I believe it's a requirement of the insurer for the bank to show the loss. It sort of distorts public records but most automatic value models exclude foreclosures.
Banks don't like to be in the holding real estate business. If it didn't sell at what they are owed at the auction then $20K is probably to sell it quick and get something.
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