to the phrase, “under contract,” as you have described the scenario.
If she is an agent/broker, she may be representing the owner (the bank?) in her capacity as an agent/broker. She has it “under contract,” meaning a listing agreement with the owner. If this is the case, she will be earning her money in the form of a commission.
If she is acting in the capacity of an invester, she MAY have this property “under contract” as some form of an option. In that event, the only way you could determine that is to research the foreclosure sale and find out what was paid for the property, and by whom.
The above items are acedemic to you, really. The questions you need to answer for yourself are:
a. Do the numbers work?
b. Then am I going to do the deal?
Where’s the profit on this foreclosure? - Posted by Kristine-CA
Posted by Kristine-CA on July 20, 2000 at 23:39:31:
Hi all. I am still new at a lot of real estate jargon, but I am wondering if you can help me with this one.
I have a question about a possible investment property. The property is a SFR, is vacant, is in foreclosure and the seller (a real estate agent) says she has it “under contract.” She is asking $26,000.00. The property needs some fix-up, maybe 10K, and could probably retail around $60,000.00, but I think $50,000 would sell it quickly.
My question is this: what does “under contract” mean in this situation? And where is her profit? If she is asking 26K does that mean that the bank is willing to settle for around 15K or so? The seller is the organizer of a large metropolitan RE investment club in my state and I am sure she knows what she is doing. I can see how I can make this deal work for me, but I would like to understand how she is making money on this deal.
Sorry. I Meant “Where Is The Seller’s Profit?” - Posted by Kristine-CA
Posted by Kristine-CA on July 21, 2000 at 09:34:33:
Thank you Ed and Ben for your replies. I am afraid I didn’t phrase my question correctly. I know where my profit my profit it is this deal–the rehab and retail sale. What I don’t understand is how the seller is making money. If she has it “under contract” and it is in foreclosure, does that mean she has no money or very little money in the deal, and the owners are willing to walk away with very little, and the mark-up is in the 26K? In the foreclosure process, who is getting paid? The owners? The bank? Both?
Sorry for the confusion. I figure if I can understand where the seller’s profit comes in, I will know most of the picture. From my research I don’t see any major obstacles to rehabbing and selling for FMV–except time and energy, both of which I have.
Assuming your numbers, here’s how I was taught to figure wholsale and retail flipping scenarios.
If FMV = $60,000 you have to figure that for someone to want to go through the time and expense of doing the rehab, they (or you) want to make their money. So take 70% to 80% of the FMV. For this case, lets settle for 75%. 75% of $60,000 is $45,000. Then subtract the cost of repairs to get to $35,000. Now, just to be on the safe side and cover unexpected cost over-runs, subtract half again as much repair cost to get to $30,000.
If are sure about your numbers, you want to do the fix-up work, have the cash and/or credit to pay for the materials and repairs and staying power to market the property for a few months while trying to sell it for top dollar, than you should do very well by getting the property for $30,000. Since she’s asking $26,000, either she’s very “ungreedy”, she got an amazing deal on it, or she knows something about the market or the house that you don’t.
The fact that it’s “in foreclosure” adds a whole new dimension.
Posted by Rick Wheat on July 21, 2000 at 04:40:07:
she has a contract to purchase the property from the owner, and is looking to wholesale it to you for a fast buck. This is “Flipping” a property, and if the realtor friend can find plenty of these for you, you’d better treat her well.
As long as she doesn’t get greedy, (and she has probably figured out that if you leave enough in the deal for your buyer, you can get filthy, stinkin’ rich wholesaling), you’ll do just fine.
Re: Sorry. I Meant “Where Is The Seller’s Profit?” - Posted by B.L.Renfrow
Posted by B.L.Renfrow on July 21, 2000 at 10:31:00:
I hate to muddy the water even more, but some further clarification is in order. First, what is meant by “in foreclosure?” Do you mean the original borrower has already been foreclosed upon and the property is now in the hands of the lender? Or is it in preforeclosure, where the owner is simply trying to sell the property BEFORE foreclosure is completed?
Regarding your question about the seller’s profit, who is actually the title holder right now? If it is a bank REO, it is certainly possible they might be willing to take an offer well under FMV, particularly if it’s been listed for a while. Or if the original borrower is the seller, and they are in danger of being foreclosed upon soon, they are probably just looking to get enough from a sale to pay off the underlying mortgage, without looking for additional profit.
Finally, by “under contract” does that mean the RE agent has it under a LISTING contract, or does she have it under a PURCHASE contract with the intention of flipping it to you?
Regardless, if you are sure of the numbers and the condition of the property, it certainly sounds as if it could be a decent deal.