If you’re paying any attention to the local real estate vibe, you’ve probably heard it said: “Maybe I can pick up a foreclosure property for cheap. . .” We in the biz hear that sentiment expressed often. But are foreclosure properties really offered to the buying public at a discount? The answer might surprise you.
Foreclosures & Bank-owned Properties Medians
Without a doubt, bank-owned properties typically sell for far less than their non-foreclosure counterparts. If we take a snapshot of the 33401 zip code, for example, which covers condos and houses in the downtown West Palm Beach real estate and the surrounding area, we learn some interesting facts. There have been 339 properties to close in 33401 in the last six months. Of those, 21% were foreclosure listings and 79% were not. The median sales price of the foreclosure homes was $91,800, while the median sales price of non-foreclosure properties was substantially more, at $239,000. Obviously, that’s a big difference, but is it necessarily evidence that foreclosure properties are “good deals”?
Foreclosures VS Non-foreclosures: Pros & Cons
In order to make an apt comparison between foreclosure and non-foreclosure properties, we have to be sure to compare apples to apples. For starters, we can conclude that homes offered for sale by financially stable people are in comparatively good shape. Homeowners with a few bucks in the bank can maintain a nice lawn, fix broken appliances or a leaky roof, and pay more attention to the aesthetics of their homes. When they sell, they therefore command a better price.
By contrast, folks in financial trouble tend to leave repairs – both minor and otherwise – unattended. Without the resources to keep their properties maintained, values suffer. That premise alone explains some of the disparity between the two median sales prices mentioned above. But it goes beyond that. Some sellers who face an impending foreclosure exhibit resentment and callousness about their situations, and they’ll act accordingly. They might sell off their appliances for a few dollars, or even deliberately damage their homes in an effort to spite the foreclosing banks. Such behavior obviously isn’t good for resale.
So yes, foreclosure properties often sell for less, but for prospective buyers, less isn’t necessarily more. Those less expensive properties will likely need significant investments to bring them up to par. And, that money is invested after the buyer closes, which typically means it has to come in cash, rather than being rolled into the loan used to purchase the property. Buyers also need to be wary of hefty HOA or condo association balances that often remain attached to such properties. A bank might foreclose on a home, but that doesn’t mean that all of the prior owner’s tabs are paid. Even things like code enforcement liens can get passed along, and buyers have to be diligent to make sure that clean title, without exceptions, is offered by the banks on the properties they’re selling. If funds have to be dedicated to satisfy those ancillary expenses, the buyer’s purchase price effectively rises.
So, Are Foreclosures Good Deals? Are there still Bargains?
All of those issues notwithstanding, can foreclosure properties still be a bargain? The simple answer is, sure. But there’s one more factor in today’s market that influences all of this, and that’s inventory. When the market soured some years back, foreclosures hit the market in record numbers. Banks were reeling, and forced to unload properties just to stay afloat, especially in condos where so many residents bought at the same time, at the peak of the market. But the economy is stronger now, and there are far fewer properties for sale. Supply is down, demand is up, and banks just don’t have to discount properties much in order to sell them. It’s therefore not all that unusual to see a foreclosure listing priced competitively with other non-foreclosure listings in the same neighborhood. Simply put, the foreclosure listing is only a good deal if it compares favorably with similar non-foreclosure properties around it.
Without a doubt, there are still good buys to be had, and some are certainly foreclosures. But it’s not the “gimme” it might have been three or four years ago. So do your homework, study the market, and rely on a good Realtor to help you find the right property at a fair price.
Still interested in foreclosures? Contact the team at LiveWPB.com to see available foreclosures in downtown WPB.