The True Cost of Foreclosure!
The nationwide statistics tell of the train wreck that our government has created. When a house is foreclosed on and then resold, the “bank” gets 36% of the retail value. When a house is short sold, the “bank” gets 15% of the retail value. So why is the government putting up such a fuss over short sales? Why are they wasting time and money trying to put a halt on short sales? The government owns roughly 50% of the notes that are distressed. They are horrible real estate investors, but they are also horrible mathematicians! Do the math. If the “bank” or the government approves a short sale they will save, on average, 21% versus if they foreclosed on a property.
The article itself paints a more reckless picture in Florida. The numbers are even worse. I won’t bore you with why the author feels foreclosures sell at such a discount, because it’s not relevant. What is relevant is that they do and that they cost tax payers an ENORMOUS amount of money. The funny thing is that these numbers are conservative. They don’t take into account the cost of upkeep, taxes, insurance, etc. etc. etc. that saddle foreclosures but don’t saddle short sales.
Median price isn’t necessarily your price
Average home worth more than foreclosure
The median sales price of a single family home in Brevard County in 2010 was $120,000. You own an average home, so your house would fetch that price, right?
Actually, an “average” owner-occupied home in Brevard is worth quite a bit more, a FLORIDA TODAY analysis of property sales records found. Try nearly $25,000 more.
The median sales price — half sold for more, half for less — has been the standard way to chart the change in home values for decades. But in recent years, these figures have been distorted by a trend not seen since the Great Depression: Foreclosures now account for a substantial portion of all homes sold.
One out of every four houses sold last year was a foreclosed property, and the median sales price was just $70,000.
The median price for all of the other houses? $143,000.
The discrepancy is even greater for condos. The median price for foreclosed condos was $45,700. For all other condos it was $118,750.
Despite some buyers’ wishful thinking, the price difference isn’t because lenders will accept very low prices just to get rid of unwanted properties. It’s because, in general, foreclosed properties are in much worse condition than other homes.
Back to Brevard
When Renee and Jack Angel returned to Brevard County last year after spending a few years in Virginia, they went house shopping.
The couple put in an offer on a short sale but gave up on it months later when there had been little progress toward closing.
In the following weeks, the couple looked at about 30 other houses in Port St. John and southern Titusville, all foreclosures. Renee Angel said all of them were trashed. While the prices were good for some of them, she said she wasn’t interested in doing major home repairs.
Finally the couple came upon a foreclosed house in Port St. John that was in pristine condition. They closed on the home in December.
“We actually were able to move in and not have to do anything,” Angel said.
The poor condition of foreclosed properties like the majority the Angels looked at is more the norm than the exception for foreclosures, say real estate agents and home shoppers.
In some cases, foreclosed houses have been stripped by their previous owners, either out of anger or in efforts to make money on the sale of appliances and fixtures. It is not uncommon that by the time a lender reclaims a home, it no longer has appliances, cabinets or flooring, said Gary Altizer, a real estate agent who specializes in selling foreclosed properties.
“I see everything. .¤.¤.¤places without toilets even,” said Altizer, who works at Re/Max Alternative Realty in Indialantic. “They’ll steal everything.”
Even in cases where the previous owners have left homes in pristine condition, vandals often break in and take anything of value.
Banks sometimes will pump money into fixing up a home, but more often than not, they won’t. For them, there is little incentive to spend time and money on repairing a house unless they can get a significant return on their investment.
“It really just depends if it makes sense to them,” Altizer said.
Market influences
Few doubt that foreclosures — and their kissing cousins, short sales — will play a dominant role in the Space Coast real estate market in 2011.
Lenders already own thousands of homes in the county, not all of which have been put on the market. Thousands more foreclosures are working their way through the courts. Lenders reclaimed 4,100 properties through foreclosure in 2010, up from 2,200 in 2009. And with a third or more of homeowners owing more than their house is worth, lenders will be under increasing pressure to approve short sales, where they agree to a sales price less than they are owed.
But the process of selling a foreclosed or otherwise distressed home isn’t easy.
Jeremy “Deano” Chaple and his wife, Ann, decided last year was the right time to buy their first home. “Everything was going down. I had the money. And I was tired of renting,” said Jeremy Chaple, promotions director for Clear Channel Radio Brevard.
Like the Angels, the Chaples looked at more than 30 homes, mostly foreclosures, in Palm Bay. And like the Angels they found most of them in terrible disrepair — until they finally ran across the southwest Palm Bay home they ended up buying.
“This one was immaculate,” he said.
But the house was a short sale, which meant it took six months before the couple could finally close on the house. But it also means they paid $102,000 for a house that sold for $175,000 in 2008.
Lenders are encouraging real estate agents to find more buyers like the Chaples, folks who plan to move into the home they are buying, rather than investors who plan to fix houses up, rent them out and perhaps resell them in the future. The feeling is owner-occupied homes add to a neighbourhood’s stability and lead to higher home values. And that helps lenders two ways: First, it means they can sell subsequent properties for more money. And higher home values make it less likely that other homeowners will let themselves slide into foreclosure.
“All the banks are wanting to push for stabilization of a neighbourhood by getting homeowners in there, not just investors,” Altizer said.
Absent owners
But the FLORIDA TODAY analysis found that about 48 percent of the people who bought foreclosed homes in the county last year were having the tax bills sent to another address, an indication that they were not living in the properties they bought.
Investors do have somewhat of an advantage in that they pay cash for houses and can close quickly while others generally have to get a mortgage, a process that can add weeks, if not months, to the sales process.
On the other hand, in the interest of neighbourhood stabilization, lenders will accept an owner-occupied offer over a similar investment offer, Altizer said.
One problem, though, is that while investors typically have a pretty good idea of the actual value of a home and what a lender will sell it for, too many potential buyers who want to move into a house mistakenly think they can buy foreclosures for as little as half the listed price.
“Buyers seem to think they can steal the property,” Altizer said. “That isn’t really true.”