Instant Equity??? Not necessarily…

Think that foreclosures, pre-foreclosures, and short sales are always a good deal with a pot of gold just waiting inside? Think again. No matter what conditions the property was bought under, the new sales price is now a comparable for any future appraisals of property in that neighborhood. What does this mean? Simply look at the law of averages, the more low prices you mix in, the lower the median price of the neighborhood goes. The lower the median and average price goes, the more that “instant equity” gets eaten up. We get inquiries almost daily from our clients and potential clients looking for a deal on a foreclosure. The conversation usually starts with something like, “I saw in the paper the other day”, or “there was this guy on TV last night…” The real truth is while occasionally there are bargains in this market, the time to get the home to closed can run for weeks or months. The bank has to approve all sales and the homes are bought “as is.” Sometimes they are totally trashed and any job always costs more than what we think initially. Also, these homes are getting bid up in much the same way that home prices were increasing in 2005. We know of several properties that started at one price and by time it was all said and done, the home sold for $100K more than the “listed” price. If a buyer is in a position to buy in this market, there are opportunities to buy nice well cared for homes. However, if a buyer insists on persuing the foreclosure or short sale properties, don’t be in any hurry at all and be prepared to inspect the property in great detail to ensure you know what you’re buying.