Some Well-Maintained & Updated Homes Are Better Values Than Foreclosures
When all of the comparable homes in an area are foreclosures and short sales, you could get a really good deal on the nicer, well-maintained and updated homes.
A broker recently called me regarding one of her listings. It’s a super nice property that’s been upgraded to the hilt – but every single comp within five miles that has sold in the last twelve months has been a foreclosure or short sale. Her problem was not that her listing wouldn’t sell – but that it might not appraise.
In certain areas, finding good comps for nice homes has become quite difficult – and depending upon the appraiser, you might not get the appraised value that is specified in the contract. Obviously, this is more of a problem for the sellers than for buyers.
When home prices are rising, homes that are not in good condition often sell for more than they should – and will appraise for more than they should, as well. The nicer homes tend to pull the values up. But in a declining market, homes that are in need of repair – or a quick sale – tend to pull the values down… therefore the sellers of nicer homes find it difficult to obtain top dollar – or a higher appraised value – for their properties.
So while you’re out trying to find the best foreclosure or short sale for your clients – take a look at some of the nicer listings. If you find a motivated seller, the best deal just might not involve a foreclosing lender.
Petra Norris says:
Doug, this is not only true for higher end homes it applies for median/avg. priced homes. Owners that own their homes free and clear are more apt to negotiate prices.
July 18, 2009 — 7:25 am
Doug Quance says:
>Petra: I’m sorry if I gave you the impression that I was referring to high-end homes – as I am not. I was referring to homes that are in top shape.
The home that my broker friend called me about is listed for $119K. 🙂
I do agree that sellers with substantial equity are able – and often do – negotiate prices.
July 18, 2009 — 8:36 am
Thomas Johnson says:
When my buyer it interested in a home, the first thing I do is pull title data and see if the seller can sell without bringing cash to the closing. If it is close, I discuss the negative equity with the listing agent. If the listing agent is clueless, we move on. We are not going to get involved with a surprise shortie.
July 18, 2009 — 10:31 am
Tim Shepard says:
Great post Doug! I’m seeing the exact phenomena in my market right now.
While there are many great buys in general, “premium” quality is absolutely on sale!
Unfortunately, the foreclosures and short sales, that are typically in poor condition and substandard quality are establishing the comps for everyone. Buyers don’t recognize the difference and insist on paying foreclosure prices for nice homes. Appraisers can’t or won’t compensate for the differences leaving sellers with no choice but to lower their prices.
As a result, some buyers are getting phenomenal deals. For example, in one neighborhood that I sell in, there were two homes that recently sold for around $450k. One was a foreclosure and the other was a regular sale. The foreclosure that set the price probably cost around $125 per sf to build. The secondo home had custom cabinets, exotic hardwoods, crown molding and other fine details throughout. The construction cost on this home was probably $200 sf. This buyer got a great deal!
I would extend your market analogy to include: When home prices are rising, some sellers seem smarter than they really are. But when home prices are falling, some buyers seem smarter than they really are.
July 18, 2009 — 1:52 pm
Greg Dallaire says:
In our Green Bay market i’m noticing that we have a huge Demand VS Supply when it comes to REO’s and Short Sales this could be a very rare thing going on in the nation but we are starting to see our inventories slowly clearing out.
I educate people on the importance of solid market data to figure out good prices on homes doesn’t matter what type it is only if they are able to actually sell there home.
Thomas i’m very impressed that you pull a Realtor Report immediately when you have a buyer interested in a property. I’m now going to implement this on a every transacation basis.
July 22, 2009 — 6:48 pm