Wheatland Realty Agent Nicole Tudisco discusses how Foreclosures and Short Sales affect the pricing of your home.
Many sellers express concerns about the house down the street going into foreclosure and how it will affect their neighborhood values. I own my home too, so I completely understand!
Right out the gate I would like to make sure we’re clear on some language, for instance, I find many people tend to use the word Foreclosure inaccurately.
If a seller is in default of their mortgage they are in PRE-foreclosure. The home isn’t truly a Foreclosure until it’s sold at the sheriff sale. This process can take anywhere from 9 months to 2 years from when the bank stopped receiving money. At the sheriff sale, the bank takes over title and possession of the home. Up until this point the owner is still on the title and has rights.
In contrast, a Short Sale means the sellers owe the bank more than the home is worth, but they are asking the bank to absorb the difference and release them from their home. They then put their home on the market to see what they can sell it for. Some sellers do continue paying their mortgages when they choose to Short Sale, however, each case is different.
Now, back to pricing your house!
Let’s start by considering Short Sales.
You will quickly see that if you are looking to price your house as a traditional sale (as opposed to a distressed sale) you can throw Short Sales out of your pricing analysis. Short Sale properties usually require a very patient buyer. It can easily take 6 months to a year or more to get bank approval. If there are two mortgages on the house it’s most definitely a year!
Also, Short Sales usually sell below market value. Think about it, there has to be some incentive for a buyer to hang around that long to see if the bank approves the deal or not. As you can see, a Short Sale property requires a unique buyer – NOT the buyer you are looking for in a traditional sale.
A buyer for a traditional sale usually has a timeframe, deadline, or some sense of urgency to move so they don’t want to play games and wait on a very shaky Short Sale in order to save $100 a month on a mortgage payment. This buyer will purchase either a Traditional Sale or a Foreclosure.
Now, I bet you are wondering how a Foreclosed home competes with yours?
First of all, in the case of a Foreclosure, the bank can close a deal in 60 days just like a Traditional Sale so the time factor is eliminated. Secondly, a lot of Fannie Mae and Freddie Mac homes are tapping into their deep pockets and doing some upgrading on the homes. They are doing things like painting, laying new carpet, updating fixtures and appliances and offering a home warranty just to move the properties more quickly. For the same reason, they can also put out an aggressive price on the home.
Foreclosed homes DO cause some definite competition.
However, when I am selling a home that is a Traditional Sale I look first for homes that are most similar to the subject property that were NOT distressed sales. If at all possible, I want to compare your home to other traditional sale transactions. Luckily in the last two years, we have had increasingly more traditional sales to use in our data assessments. This has allowed us to be able to ignore those gussied up foreclosures when we set our pricing!
However, if distressed property sales start to take over your area, then there is a greater impact. This is when you will want to expand your search for similar properties.
If you have a lot of distressed sales in your area, be sure to contact us to help you determine your market value. It’s a free service and could give you piece of mind!
Bottom line is…
Keep an eye on comparable Traditional Sales, put your focus there first. If you are looking at a number of distressed sales in your area, involve a professional!
If you have questions specific to your personal situation, please contact me. I will give you my expert opinion based on the details surrounding your property.
My best always!
Your Cure for the Common Realtor,