The It word in the real estate community is the F word. Foreclosures. There are a lot of them out there, they’re doing interesting things to the market, and there are a lot more coming. As of March of 2011, there were around 2,000,000 houses late on their mortgage payments (yes, that’s 2 MILLION) 40% of which were delinquent by 12 months or greater. Foreclosures are going to be a fixture of the market for some time until we get back on track, so we might as well get familiar with them. So- hot deal? Or hot mess?
For the real estate virgins out there, I’ll break it down a bit before I plunge in. I really hope that everyone knows if you buy a home with a loan, then you are using that house to secure the debt. What a lot of people are missing when they look at that equation is the human element. The people who are leaving these homes are not leaving them happily! While you will have the occasional foreclosure in pristine shape, the fact of the matter is that Donna Reed would not have signed a balloon loan (and anyone that perfect is totally repressed so if the hubby lost his job then the eviction might turn into a rendition of The Shining). Expect these properties to be damaged or run down (getting evicted is bad for drywall, and the owners tend to leave with everything- including the kitchen sink). If you do not want a fixer-upper then don’t go looking at foreclosures, you will still get a great deal.
With all the foreclosures out there, lovely homes in great condition are selling for far less than their assessed value- these are the major deals that people without Home Depot memberships are going to want to take advantage of. If you are a seller, resign yourself to the fact that the market is against you, but any losses that you take you will recoup by buying into your next home at a lower price as well. Don’t make the mistake of lowering your price when the market starts to swing back the other way- do it now. If you sell low when things are picking back up, you might wind up getting the worst of both worlds.
This is where your real estate agent comes in. They will be able to tell you what a fair market value is for your home- the best price at which it is most likely to close. Listen to them when they tell you this, they get it scientifically by using comparable homes in your area (unless they are Traci Amick, who is a house whisperer with reportedly psychic powers). If you are a buyer, listen to your real estate agent’s feedback after you describe what you want. If you have told them you don’t want to do a lot of work and they politely let you know that your price range is off- there is a reason for that. You are not going to be purchasing a foreclosure- you will be purchasing a home, from a person, who likely has a mortgage to pay off.
One final note of warning on foreclosures, to all the Tim Allens who are going to fix up what has fallen down with the market (and my hat is off to you, these homes need your help)- please expect about 50 pages of disclaimers with the purchase of your foreclosure, and don’t be intimidated by them. All they are saying is that the bank is done with the house once you buy it. Just make sure that you get it inspected, so you have a realistic idea of what you are getting into.