real estate

Will foreclosure mess help home sellers?

Highlights
  • Sellers of properties not in foreclosure may a gain temporary edge.
  • Housing inventories could drop, possibly boosting prices.
  • Setting the right price remains key to getting a sale.

As foreclosures grind to a halt across the country, could this be a great opportunity for some home sellers?

In recent weeks, lender documentation issues have forced many major lenders to suspend foreclosures, removing thousands of properties with delinquent mortgages from the market.

Could now be the time to sell a home that is not attached to a distressed mortgage?

"There are fewer homes on the market, so 'regular' sellers may be happy in the short term," says Delores Conway, a professor of real estate economics at the University of Rochester in Rochester, N.Y. "But there is still quite a bit of uncertainty about where the market will go from here."

Real estate professionals offer the following three tips to homeowners wondering if they can take advantage of the current foreclosure freeze to sell their nondistressed properties.

No. 1: Monitor local inventories

In the short term, Conway expects the foreclosure freeze to cause housing inventory to drop to some extent.

"There are estimates that 25 (percent) to 30 percent of recent real estate sales have been foreclosed properties," she says. "So if a third of the homes for sale now go off the market, there will be a more limited supply for the buyers."

With fewer options for home purchasers, Conway predicts real estate prices may stabilize and even increase in some areas. If that happens, it would obviously be a better time to sell, she says.

However, the window of opportunity may slam shut when the foreclosures come back on the market.

"Ultimately, those distressed properties do have to be sold," Conway says. When that happens, Conway expects prices to drop again, making the outlook worse for sellers.

No. 2: Evaluate 'short sale' competition

If there are several short sales in a neighborhood, the foreclosure freeze probably won't benefit regular sellers in that community, says Danielle Babb, a real estate agent and author of "The Accidental Landlord."

Distressed mortgage homeowners -- who know they'll eventually lose their homes to foreclosure once the "freeze" is lifted -- are more likely to try to offer their properties up for a short sale, and that could undercut the price of similar "for sale" homes by a significant amount, Babb says.

There is a silver lining for conventional sellers, though, says Shawn Miller, a real estate agent in Woodstock, Ga.

Miller says short sales typically take a long time to process, since there has to be agreement between the seller, buyer and the mortgage company on the final sales price. And that length of time can be a turn-off.

"A short sale is a long, long process that can take up to six months," Miller says. "If a buyer needs to move in sooner than that, they may be more motivated to buy a nondistressed property."

Sellers of nondistressed properties probably won't have much luck with discount-focused purchasers anyway, Conway says.

"Some of the buyers that are out there, they're really only interested in foreclosed property because it is greatly reduced in price," Conway says. "So with a foreclosure freeze, those buyers may just move out of the market entirely."

No. 3: Set the right sales price

Some real estate experts predict home values may stabilize or even increase in the near future because of the foreclosure freeze. Still, that does not mean sellers should raise their asking prices unreasonably.

"Some people don't want to hear the fact that if they sell their home for what it's worth, they could lose some equity," Miller says.

But the reality is that if homeowners get greedy and try to inflate their for-sale price, they'll probably lose the opportunity to find a serious buyer, Miller says.

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