How Foreclosures Affect Buyers And Sellers

If anything is certain about the foreclosure crisis, it's that it isn't over. That has important implications, not only for people losing their homes but also for those planning to sell or buy a home this year.
As of January, about 3 million properties were in foreclosure, headed that way or already owned by banks, according to the latest report from CoreLogic, an information, analytics and business-services company in Santa Ana, Calif.
About 1.6 million of those homes were believed to be in the so-called shadow inventory, a supply of foreclosure properties not yet listed for sale. It's a major stumbling block to a housing recovery. It puts downward pressure on home prices, which hurts home sales and building activity.
Here are some areas for sellers and buyers to watch when dealing with a foreclosure property.

Price
Foreclosures and short sales have widened the gap between sellers' and buyers' perceptions of prices. Sellers think their home is worth more than it really is" and buyers think the prices are too high. One cause of that gap is real-estate brokers scrubbing foreclosures and short sales from comparable-sales data that are used to set sellers' asking prices. While sellers might feel a moral justification for that approach, it's "disingenuous" because the status of the seller's mortgage isn't important to buyers.
Just because you happen to be paying your mortgage, that doesn't mean the buyer has to step into your shoes and pay your inflated price.

Interest rates
Traditionally, mortgage rates have been a wild card for homebuyers. That's not the case today because the Federal Reserve says it will keep rates low at least through late 2014. That's not a guarantee, but it has taken some of the urgency out of homebuying and put more buyers into a wait-and-see pattern.
The perception that prices could go lower, a lot of foreclosures (are) in the pipeline and (the expectation) that rates will remain low — that's certainly keeping some people on the sidelines
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Location
Buyers might be reluctant to purchase a home in a neighborhood plagued by foreclosures and short sales. But Stephen Israel, president of Buyer's Edge Co., a real-estate brokerage in Bethesda, Md., says buyers can learn from real-estate investors who are looking at areas that have been hit hard but might be prime for a turnaround.
Investors are interested in neighborhoods that were beat up by foreclosures and that have other redeeming features that they then believe will be the first to bounce back.Those redeeming features might include easy access to public transportation, well-regarded schools, attractive shopping centers and other positive infrastructure elements. Neighborhoods that have these amenities can be really interesting pockets, where there could be some very good values.

Condition
Foreclosure and short-sale homes are sometimes in worse shape than other homes on the market. That's especially problematic for buyers if a home has been vacant a long time. Neglect can result in problems in plumbing, heating, cooling, electrical and other systems.

Professional Services

There is a big difference between a property that has been vacant a few weeks and one that has been vacant a year or more. A home that's in poor shape might not be a bad buy if the buyer understands the risks. Sometimes, though, those risks can be difficult to assess if the length of vacancy is unknown or the water, sewer, electricity and gas have been shut off. The utilities not being in service is an interesting part of this equation that people miss all the time.


Buy or sell?
The bottom line for buyers is that they must "buy smart," by researching neighborhoods and knowing a home's actual condition beyond its cosmetic appearance. The bottom line for sellers, is that they must get serious about pricing, cleaning, decluttering, staging and improving the value and desirability of their home.