Foreclosed Homes Account for 25% of Sales
One out of every four homes sold during the third quarter of 2010 had been foreclosed on according to RealtyTrac.com. That is an amazing statistic if you stop and think about it. The average sale price of those foreclosed properties was 32% below the average sales price of properties that had not been foreclosed. More plainly stated, if there were two homes sold in Des Moines (one that has been through foreclosure and one that is merely a private sale) each valued at $100,000.00, the home that had been through foreclosure sold for $68,000.00. While many people have purchased what they perceive to be a deal there are significant hidden issues.
The first problem is that many people believe that the housing market is going to rebound. There is no evidence to support this belief. If anything there is significant evidence leading one to believe that the decrease in value of homes is actually a correction. What this means is that the value of homes have actually decreased to what the value should be. If the housing market is correcting itself to where it belongs then why would anyone in their right mind think the housing market is going to heat up again and outpace the real worth of the house? Does anyone remember the “dot com” bubble and what happened after it burst? That is a great analogy to what we see today in the housing market.
The second problem is the perceived value. Many times when a house is foreclosed on it sits vacant for a significant period of time prior to being sold. I don’t know exactly why but in the best of circumstances a house that is not “lived in” seems to fall apart faster. In addition if the house has not been occupied during winter months and a “property preservation” company hasn’t secured the property, the pipes will freeze and we all know what happens then. At some point a “property preservation” company will come into the home and do the least amount of repairs to make the home presentable for sale. There is a reason people should avoid homes that have had significant water damage. I have seen numerous problems arise in homes that have had water damage. Some of the problems include foundation issues, floor damage, additional plumbing problems, waste pipe problems, and wall problems. Water ruins carpet and makes a great breeding ground for mold. Even when issues are disclosed on a “seller disclosure”, sometimes the extent of the issues do not arise for a period of time.
The final problem can arise when the previous home owner doesn’t take great care of the home prior to being forced out. There are stories where the previous home owner strips the copper pipe and wire out of the home. In addition I personally know of home owners who have trashed the home just out of spite. If a purchaser buys a home in this condition then they are paying the value and may have to sink more money into fixing the home than they perceived they saved.