Selling in a sea of foreclosures

Buyers look for fair-market prices
Listed foreclosures can be tough competition for owner-occupied homes because banks and asset managers usually are more willing to negotiate prices than the typical homeowner would be, Lynch says. That's especially true today, since banks have more REOs on their books, and they don't want to pay the costs to maintain and manage those properties.

Auction foreclosures are "a separate market," but if buyers know the sales prices of those properties, "that is going to impact their thinking about the value of your home as well," Billings says.

Home sellers should be aware of auction properties even though they may not be directly comparable because of their poor condition or lack of wide exposure to the market.

The impact of foreclosures on the value of nearby houses was quantified in a 2006 study, " The External Costs of Foreclosure," by Dan Immergluck of the Georgia Institute of Technology and Geoff Smith of the Woodstock Institute. This study used statistical models to analyze data collected in Chicago in the late '90s. The researchers concluded that each foreclosure within one-eighth of a mile from each home reduced the value of that home by 0.9 percent.

Yet, "fair market value is still an option" for home sellers, Billings says. "Just because a foreclosed property is down the street doesn't mean you have to take $15,000 less than your house is worth. But it does mean that any sort of shoot-the-moon option isn't available. It requires a laser focus on a true justifiable fair-market price for your home."

Homes that are overpriced run the risk of being stigmatizing, Lynch warns.

"It could be that nothing is wrong with the house, but the longer it sits, the more people think there is something wrong with it," he says. A fair-market price can be made more attractive with the addition of a sweetener such as a price concession, decorating allowance or seller-paid closing costs.

Homes in top condition sell faster
Bank-owned homes are notorious for their poor condition, because the former owners typically leave under duress and have neither the means nor the inclination to take care of the property. Moreover, these homes are almost never prepped before they're placed on the market.

"Whether it's an auction or a listed foreclosure, nothing is going to be done to those properties. They come with all of their 'charm' intact," Billings says.

The poor condition of foreclosures can be a strong selling point for an owner-occupied home.

Sellers need to "make certain their house looks special, is in good condition and has been well-maintained," Lynch says. Some home sellers mow the grass and park their own cars in front of vacant properties to disguise the presence of vacant homes, he adds.

Buyers who want a "project" home that's being sold at a discount because it needs substantial repairs and improvements typically won't purchase an owner-occupied home in good condition, Billings says. A well-maintained home might appeal to someone who was looking for a deal, but soon realized a foreclosure home would require a substantial investment of time, money and anxiety compared with a move-in ready house.

The foreclosure "offers the unknown, and you want to offer peace of mind," he says.



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