Starting in 2007, foreclosures and short sales rocked the real estate market across the country. The flooded our areas and seemed to drive our real estate prices down. Rumors began to spread that foreclosures would only increase year after year. Since 2007, we have seen many misconceptions come and go but a few myths still float around on a regular basis.
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. The idea was that the foreclosure cork was now out of the bottle. Soon to follow will be a flood of REO’s inundating the marketplace. Don’t hold your breath! We have seen the influx of foreclosures decrease our local prices but we are now seeing the market stabilize. Banks have learned that they have control of the inventory. Releasing homes in measured amounts will help stabilize the prices of homes in our market. Today, the foreclosures we see hit the market are priced at market value and will sell at or very close to asking price.
2. You can go directly to a bank to buy a foreclosure.
We’ve all been touched by a foreclosure in some way. Either we know someone who is being foreclosed upon or have a friend or neighbor that has given us the inside scoop on a local property. Buyers are under the belief that they can swoop in early and purchase this property directly from the bank. 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? Pay cash at the courthouse steps or get in line with everyone else when they hit the local MLS (Multiple Listing Service).
3. You can get a killer deal by submitting lowball offers on foreclosures.
You would think this myth would be dead by now. Unfortunately, like Elvis sightings, it just won’t go away. 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 often ignored and are, quite frankly, a waste of everyone’s time and effort. You might get a 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 it’s gone unsold for so long. And even if you have cash, your lowball offer won’t be accepted —seriously.
4. You can’t use foreclosures when doing an appraisal.
Or short sales, for that matter. That is no longer true. In fact, in many neighborhoods, that’s all that’s there. Therefore, foreclosed or distressed sales represent the actual value of homes in the area and HAVE to be used to appraise other properties. Don’t like it? Get over it. Times have changed and the ways neighborhoods are valued have changed as well.
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 are actually increasing on the upper end. We are seeing the market share of foreclosed homes under $1 million shrink, but those properties valued over $1 million and in communities with higher fees are still out there. 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.
Myths control behavior, and this has never been truer than in the housing market. Savvy agents will work hard to educate their clients, debunk myths, explain market trends, educate with solid facts – and actually close transactions.