This morning I watched a piece on Good Morning America (can be viewed at the bottom of this post) about the nation’s foreclosure crisis and the potential savings a buyer can achieve by buying a Bank Owned property. Some of it I found a bit misleading or simply not applicable in our South Orange County real estate market.
Two Ways To Buy a Foreclosure
As noted in the piece, there are two ways one can purchase a foreclosure. The first is to go to the courthouse on the date of the Trustee Sale and bid on the property. In the television spot, they imply that you may have trouble getting a loan and you will need at least 5 to 10% down. I’m not sure about other places in the country, but here you will have to show up with cashiers checks in hand. These are cash purchases.
Additionally, you will be competing at those sales with professionals who are at those sales everyday. They spend significant time researching the upcoming properties and the competition for the properties at the courthouse is significant. You are also not guaranteed clear title and there is a fair amount of risk you will be assuming. As GMA points out, you buy these properties sight unseen. Many of the opening bids are well above today’s market value because the bank intends to retain the asset to sell on their own, leading to the second way to purchase a foreclosure.
The properties that the bank retains will generally be sold through a real estate agent and placed on the market. The piece talks about the significant savings one can find by buying a foreclosure. The national median home price is $160,00 and the median home price of foreclosures is 28% less, or a $45,000 savings. The fact is that the number of foreclosures in the lower price points is significantly higher. That lower price point will certainly have a direct impact on the lower median price for foreclosures.It’s important to note that while you may achieve some savings, there is a flaw in implying that the 28% is due entirely to a ‘discount’.
It’s important to note that while you may achieve some savings, there is a flaw in implying that the 28% is due entirely to a ‘discount’.I find the example discussed in the piece highly suspect. The example property sold in 2005 for $300,000 and was purchased today for $175,000 which is 42% less. That sounds about right in a lot of markets and is probably not far off market value. They mention that is $100,000 less than nearby homes (putting them at $275,000). Either the nearby homes have not seen much of a drop in value (which I doubt) or this home is likely smaller than the nearby homes, making the implied savings of $100,000 discount misleading.
Discounts for Orange County Foreclosures
There is no question, there is significant buyer interest in foreclosures. Buyers are on the pursuit for a good deal, and rightfully so. So what does that inventory look like in our South Orange County markets? As of right now, there is a very limited inventory of foreclosures with Aliso Viejo at only 10% of active listings and as little as 2.5% in Coto de Caza. With buyer demand for these properties, and very few available, the idea that discounts will be dramatic may be misguided. And keep in mind, many of these will be in poor condition with cosmetic and/or structural work to be done.
So You Want a Good Deal
The available foreclosures is likely to increase. But these are the current numbers. So how do you find a good deal?
Short sales are abundant and in many parts of South County, they make up nearly 50% of the available market. And don’t count out the equity seller. Those that are listed today are well aware of market conditions and if they have decided to sell now, it’s because their personal circumstances have forced a move. Most of them are very motivated and the upside of these transactions, there is no waiting for the bank.
Good Advice
The very last moments of the GMA piece advised buyers to get a Owner’s Title Policy when purchasing a foreclosure “in case someone comes along later claiming it’s theirs”. Sound advice.
