Probably 95% of my business these days is selling foreclosed homes. My job is to get the best deal I can for my customers and my opponent is the bank. I use my experience to figured out what is the lowest offer that they would accept on any particular house. I had never really stopped to think about how much money the banks actually lose on these REO properties, until today.
I sell many homes in North Minneapolis. I have several investor customers there that have bought a large number of properties at deep discounts. Recently, we found this nice 3 bedroom/1 bathroom 2-story house in a decent part of North Minneapolis listed on the MLS. In fact, another customer of mine had bought and renovated the house next door just 2 months earlier.
The house was actually very appealing inside. It had hardwood floors, great original woodwork with oak columns separating the living and dining rooms. Someone had renovated the kitchen with new maple cabinets and stainless steel appliances. Unfortunately, the copper thieves had been through the house and stripped out all the copper and then they stole the 200 pound radiators from each room (dragging them down the stairs and across the wood floors).
The property sold in 2 days back in March 2006 (just 3 years ago) for $189,900. Judging by the MLS records, it appears things went downhill quickly. Just 16 months later, by July 2007, the home was listed as a foreclosed property. The starting sale price, $92,000. It continued to be listed by various real estate agents with little success. Eventually the City of Minneapolis assessed a $6000 vacant building fee (VBR) in March 2008.
My customer and I looked at the home in February (2009). It was actually boarded at that time and the list price had dropped to $34,500. We were initially concerned about the house being condemned and were not interested in paying the $6000 VBR. After some discussions with the listing agent, my customer put in an offer and eventually the bank agreed to pay for all assessment, boarding fees, and the VBR. They accepted our offer of $12,500.
It took several weeks to get the title work done, but we finally got to the closing table. As I am reviewing the HUD for the transaction, I noticed what the seller (the bank) proceeds from this transaction were after paying the assessments, water bills, VBR, commissions, title work, closing fees, etc:
$69.60! That is it. From $189k to $69.20 in 3 years. Unbelievable.
My customer is excited about their $12,500 investment property. They plan to spend $51,000 rehabbing it and then renting it out. Once the market turns around, we expect this house to be work that $189,000 again some day. But for now, we are thankful we are not the banks.
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I am a licensed Realtor in the State of Minnesota. This website is not a multiple listing service, but each Minnesota & Minneapolis real estate agent is a member of the Regional MLS of MN, inc., a provider of the Minnesota MLS.