Your Real Estate Myth
Buster is on the job! Recently one of my
buyers asked me where are all the foreclosures that she is hearing about on the news. Have you been asking the same question? Let the truth-telling begin.
MYTH #1: There is going to be a flood of new foreclosures to the
market.
This rumor has appeared every year since 2008 and has been
routinely debunked. However, the announcement that the Feds reached a settlement over the robo-signing scandal reignited speculation earlier this year. The idea is simple: Since the cork is now out of
the foreclosure bottle, we’ll soon see another flood of REO’s inundating the
marketplace. (REO means Real Estate Owned = Bank or Lender Owned).
My personal opinion: don’t hold your breath.
Banks have learned that if they control inventory, they can
affect local prices. By releasing homes in measured amounts, they realize
higher prices than if they released a glut of homes. In addition, they’ve
learned that if they can mitigate their losses by agreeing to a short sale,
everyone wins.
REALITY: All real estate
is local and some areas have been harder hit than others. More than 50% of all foreclosures nationwide
have occurred in only 4 states!
MYTH #2: You can go directly to a bank to buy a foreclosure.
Someone knows someone who is being foreclosed on and they want
to step in and grab the house before it hits the market.
Don’t we all?
In
reality, banks have a simple system – they first offer properties on the
courthouse steps. The rest they assign to asset managers who then hire local
real estate agents to put them on the market along with all the other homes.
Want an REO property? Pay cash at the courthouse steps (if you really know what
you’re doing) or get in line with everyone else when they hit the local MLS
(Multiple Listing Service).
REALITY: The process is
complex. Unless you are experienced,
hire someone to help you.
MYTH #3: You can get a killer deal by submitting lowball offers
on foreclosures.
And Elvis is still in the building! Here’s the truth: Banks want REOs sold in 30
days or less, so they typically appear on the market priced slightly under
comparable properties. If the property doesn’t sell quickly, the bank will
lower the price after about 30 days.
Lowball offers are most often ignored and are, frankly, a waste of
everyone’s time and effort.
You might
get a good deal by offering a lower price on a foreclosure that’s been sitting
on the market for more than 90 days, but remember that there are good reasons its
gone unsold for so long. And even if you have cash, your lowball offer probably still won’t be accepted — really.
REALITY: In our area, you
will not get a $200K home in excellent condition for $100K or less in a
foreclosure. Lenders are hiring experts who are pricing homes competitively. If a
home is priced under $100K in our area, I can guarantee you that it needs work –
serious work.
MYTH #4: You can’t use foreclosures when doing an appraisal.
Or short sales, for that matter. That is no longer true. In
fact, in some neighborhoods, that’s all that’s there. Therefore, foreclosed or
distressed sales represent the actual value of homes in the area and MUST be
used to appraise other properties. Times have changed and the ways
neighborhoods are valued have changed as well.
REALITY: I hate having to
tell my sellers this, but it is true. A
couple of short sales and/or foreclosures in a neighborhood during the past six
months or so can and will affect the price you will get for your home.
MYTH #5: Foreclosures are only affecting the bottom end of the
market.
This used to be true. However, while foreclosure rates on the
lower end of the market have actually decreased, they’re actually increasing on
the upper end. According to Daren
Blomquist, vice president of RealtyTrac, the market share of foreclosed homes
under $1 million is shrinking, but those among properties valued over $1
million are rising – up 115% since 2007. And foreclosures on properties valued
upwards of $2 million have increased by 273%.
While some well-known jet-setters
have melted down and lost everything, others are choosing to strategically default. They see it like liquidating a poorly
performing portfolio – they have enough resources to cut their losses and move
on. Historically, banks have been reticent to foreclose high-end homes and
absorb a large loss, but defaulters are now forcing their hands and mansion
foreclosure rates are moving on up.
REALTY: See Reality #4 –
you will not get a fabulous mansion for cheap, so be prepared with some significant
cash if you are considering a high-end foreclosure property.
I work hard to educate my clients, debunk myths, explain market
trends, and educate with solid facts.
This is only the tip of the iceberg with regard to foreclosures. What questions can I answer for you?
