“I want to get a good deal!”

I get calls regularly from prospective homebuyers who begin by saying, “I’m interested in foreclosed properties.”  A couple of questions later, that translates into, “I want to get a good deal!”

For a lot of reasons, consumers often expect that foreclosures (and short sales) are where the bargains are.  Sometimes that’s true.  Frequently it’s not.  In my experience, bank-owned properties (or HUD, Fannie Mae, or Freddie Mac) are about as likely to be overpriced as “regular” resale listings.  They are almost never underpriced — relative to other homes in comparable condition, location, etc.  Moreover, even if you negotiate an attractive purchase price, the seller will not provide any property disclosure or survey, and you may find that many “typical” seller’s closing costs become yours and that “as is” really does mean “as is.”

Do you really want to get a “good deal”?  Then go to a market segment with a lot of inventory that isn’t selling!  Simple enough?  Not really.  What are you looking for?  Why are you buying?  Do you plan to call it home or is the property an investment?  How long do you plan to own it?  What’s important to you — size, age, style, location, convenience, amenities, views?  Etc., etc., etc.?

All of that aside, however, let’s consider a market where you would expect to find “desperate” sellers and a lot of bargains.  As an example in Central Texas,  MLS Area LW, a beautiful piece of Texas Hill Country along the southwest shore of Lake Travis and the Colorado River — a very attractive place for many Central Texans. As of this morning, there are 71 Active listings in that area.  There have been an average of 3 properties Sold in each of the past three months.  At that pace, current listing inventory will last for 2 years!  This is a truly seller’s market!

Now, that inventory includes everything from mobile homes to lakefront mansions, ranging in size from 928 SF to almost 19,000 SF, with list prices from $124,900 to $16,000,000.  Sales have closed in a narrower range — $228,500 to $835,000 ($87.05 to $176.20 per SF), after an average of 199 days on the market.  Is that range of values a “good deal” for you?

Housing inventory is not a “first in, first out” thing.  Instead, some homes are well prepared and priced and sell quickly while others languish in this very crowded market segment.  65% of the non-foreclosure listings (42 of 65) now available in this market segment have been available for 90 days or more.  66% of foreclosure listings (4 of 6) have been on the market for 90 days or longer.  (Those aging foreclosure listings include two that have been on the market for 750 days and 817 days.)

Even in a seriously over-supplied market, institutional sellers (banks and mortgage lenders) are not routinely moving more aggressively than private homeowners.  Ultimately, the success of a residential listing is always about price, condition, and promotion, and there is no evidence — in this sample market segment, at least — that foreclosures are more likely to offer a “good deal” than the general market.

So the message is … think carefully about your home-buying objectives.  If you want a place to raise a family for 5 years or more, that’s probably a very different property than if you are looking for a place to invest for resale profit in 2 to 3 years, and that is different from the low-maintenance lifestyle of a downtown condo or the joy of a small lakeview cabin.  “Good deal” means a lot of things to a lot of people.  Let’s talk about what it means to you and developing a home search strategy to meets your needs.  It may well include foreclosures, but a focus on them?  Probably not.