Not surprisingly, foreclosures in SW Florida are on the rise. This can be caused for several reasons, most notably investors who should not have been in the market, marginal buyers who bought with an adjustable rate mortgage so they could qualify and the adjustments are adjusting right now and they can’t afford the new payment, rising insurance, and rising property taxes.
All combined have put pressure on the people who could least afford it. Some agents have speculated that when the foreclosures happen, it will make for sweet deals for investors and home buyers. I respectfully disagree, and I’ll explain why.
Many people bought with 100% or 95% financing at the top of the market. The market has dropped around 20%, and the sellers are now upside down on their loan. They don’t have the cash reequired at closing to offer the home at today’s market value, so they cannot sell. No deal for a would be investor/buyer. Many foreclosed homes are also in need of much repair, so you wouldn’t want to pay full market value on a property that needs money thrown at it.
Most people who buy foreclosures want a deal. The deal just isn’t there from the seller. You’ll get a better deal waiting for the bank to take it back. Banks are no dummies, they get BPO’s (Broker Price Opinions) and appraisals. They limit what they’ll lose by selling it for as much as they can get. Some banks actually try to make a profit because it was insured with PMI (Private Mortgage Insurance) so the bank’s exposure is only 80% of the original market value. Coincidently, that’s about how much it may have gone down, plus repair costs, attorneys fees for the foreclosure, and lost interest.
Boiling this all down, it’s usually better to purchase from a seller who has priced their home at today’s market value, not what they owe, what they paid for it last year, or what they think it was worth last year. There are many sellers out there who are listening to the market, and pricing it at market. Those sellers are selling. The backlog of inventory is from sellers who either won’t listen to the current market, won’t listen to their Realtor, have the wrong agent who also doesn’t know, or have a property that’s really hard to judge what the real value is.
If the seller doesn’t know the real value, the buyer isn’t likely to gamble on it either unless it’s a unique to what a buyer is looking for, or is simply irrestible.
Bottom line is, there are good values out there, just don’t count on the foreclosure market to provide them.