POWER OF SALE:
Most consumers think "Power of Sale" means a cheap sale, under market value. Real Estate agents use the term to attract business to their web sites, offering extensive lists of power of sale properties and the buyer's eyes light up with quick, get rich visions.
The fact is, the Bank Act in Canada mandates the Banks must get "fair market value" for any homes that are repossessed. They cannot simply sell the house for what is owing on it. With most power of sale properties, there is very little equity to begin with, the result of 100% to 105% financing in many cases.
In addition, these homes are often in need of repair, which adds to the purchase price. Typically, the bank lists the home through a real estate agent at market value. The home will sit for 30 to 50 days before the first price reduction. This reduction usually causes some activity and the home may sell. If not, it sits for another month at least before the next reduction. By following this strategy, the Bank ensures that it cannot be held liable for failing to try and get the mortgagor fair market value for the home. It's a bit of a dance.
Even if you buy the home after the 1st or 2nd price reduction, the property usually needs repairs. This would bring your investment back up to "market value"...hardly a "deal" if you plan to re-sell it and pay real estate commissions and legal fees.
Don't forget, when looking for deals on the multiple listing service you are actually searching the retail market for good buys. This is much easier said than done and is not the best way to find bargains. However, I don't think a real estate agent would ever tell you that! We get a lot of "leads" from folks looking for these type of purchases.
To be fair, you can occasionally find a power of sale property that makes sense from a financial perspective, but it's not as easy as you may think.
I'd love to hear your comments on this topic.