Buyers drawn to bargains offered by foreclosures, short sales

Posted by Annalisa Burgos | March 24, 2009

It looks like it’ll be a promising Spring for real estate. Buyers are back in the market, drawn to falling home prices, low interest rates, potential bargains in the form of foreclosed homes and short sales, and incentives like the $8,000 first time buyer tax credit. In fact, first-time buyers bought half of the homes sold in February, says the National Association of Realtors.

Of the existing homes sold in February, distressed sales — which involve a foreclosure property or a homeowner doing a short sale — accounted for 40 percent to 45 percent, pushing overall activity up 5.1 percent but dragging median home price down more than 15 percent, according to NAR. Sales are still down 5 percent year-over-year.

Distressed homes typically sell for 20 percent below normal market price, so it’s not surprising to see first-timers drawn to these properties, especially if they are move-in ready or require minimal repairs.

If you’re one of the many bargain hunters out there, check out FrontDoor’s Foreclosure Guide for tips and advice on buying a distressed property. Did you know foreclosure homes sold at auction are typically sold “as-is” and require a 10 percent to 20 percent cash deposit upfront?

The bad news is that sellers are competing with these heavily discounted properties. So even if you have a well-maintained property, you may have a hard time selling it, even if it’s priced reasonably.

Market value is just that — value dictated by the market, i.e. what a buyer is willing to pay for your home. It’s not what you paid for your home. It’s not what you paid for your home and all the wonderful home improvements you made.

The reality is that if your home is competiting against foreclosures and short sales, finding a buyer may end up coming down to price.

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