Distress Sales Make Up Nearly 20% of West Linn Home Listings
Ron Ares March 31st, 2010
Not exactly the happiest headline, I will admit.
For my own curiosity, I ran numbers for the West Linn market, and found that nearly 1 in 5 homes for sale is either listed at a price below the mortgage payoff amount (short sale) or has been foreclosed on and is now owned by the bank.
Here’s the breakdown from the RMLS database as of March 29, 2010:
- 384 active properties for sale in West Linn
- 54 short sale properties (14%)
- 19 bank-owned (REO) properties (5%)
I wish I had a way to compare this to previous samples, but the data isn’t easily attainable. The local multiple listing service, RMLS, only recently instituted the ‘short sale’ field in the database, allowing brokers to distinguish these from bank-owned properties. Going forward, these numbers will be more accurate.
Please note, this sample is only for homes actively being marketed, and doesn’t include homes that are merely in default or held off the market by banks as part of the their ‘shadow inventory’ (if it exists).
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20% “distressed” isn’t materially bad news per-se. Either these properties are priced right and the bank will accept the deal, or they wont. However, if the banks do accept the low-ball offers that will come in from opportunists, it will only serve to set comps, and drive expectations lower. From a “deal” perspective, REO and short sales are invariably a pain in terms of contract process, and usually haven’t been well maintained (especially when the bank shuts the water and power off) so they aren’t for every buyer at all, especially if you don’t have lots of cash to remedy any issues with the property. I would guess that volume wise – it’s more like 30% in distress or being kept off the books.
If you want to sell, just price accordingly.
Stuart, excellent point. I saw Ron’s excellent post and was trying to figure out what this means for the market in general. I wasn’t really sure how to interpret the data myself, but I think you’ve pretty much summarized it well. At the moment, short-sales are pretty much a roll of the dice. A potential buyer can wait for months and still get no response. Short sales usually are the pre-foreclosure stage and the bank is trying to figure out what to do with the property and if there is any chance they can recover their investment from the current owner. I’m guessing that the trade-off for the bank is whether or not its worth going through the short sale, or keeping the property and officially going through the foreclosure process. I think if they go through foreclosure, there is some mortgage insurance that kicks in to help cover their losses on the primary loan. The 2nd loan, if there is one, gets wiped out completely in the process. Deals can definitely be had, and banks will price REO’s competitively against the current market, which will depress comps for a while. They can be a good deal, and with a little extra cash, the new owners can update the home and still come out ahead. But, for those who prefer a “move-in” ready home and be able to talk to an “emotionally vested” seller to negotiate the terms of the deal, then the buyer is probably better off avoiding the distressed properties and instead negotiate hard on the other 80% of homes on the market today.