Many misconceptions have come and gone, we still encounter seven myths on a regular basis about foreclosures.
1. You can buy Raleigh Foreclosures for pennies on the Dollar. This has always been the biggest myth. Banks know what they have, and sell those foreclosures at market value, to slightly less then market value.
2. Buying a Foreclosure at the Courthouse steps the least expensive way to purchase. Two myths here. First, Court House Auctions must be for what is owed on the property plus trustee fees. Many times this is MORE then what the house is worth. So waiting for that foreclosure to come onto the market with a Realtor will be at market value, or slightly lower then market value. This can be several thousand dollars less than the auction price.
and second, here in NC foreclosure auction winners must put up $750 or 5% of the bid price, which ever is more. Then 10 days latter, if there are no upset bids, or the owned does not come back to repay the loan, the balance due is in CASH. No loans, but CASH ( certified funds )to the Trustee.
3. There is going to be a flood of new foreclosures to the market.
This rumor has appeared every year since 2008 and has been routinely debunked. However, recent announcements that the Feds reached a settlement over the robo-signing scandal have reignited speculation. The idea is simple: Since the cork is now out of the foreclosure bottle, we’ll soon see another flood of REOs inundating the marketplace.
4. You can go directly to a bank to buy a foreclosure.
Every few weeks I’m asked how to buy foreclosures direct from a bank. Someone knows a friend being foreclosed on and they want to step in and grab the house before it hits the market. Don’t we all? In reality, banks have a simple system – they first offer properties on the courthouse steps. The rest they assign to asset mangers who then hire local real estate agents to put them on the market along with all the other homes. Want an REO? Pay cash at the courthouse steps or get in line witheveryone else when they hit the local MLS (Multiple Listing Service).
5. You can’t use foreclosures when doing an appraisal.
Or short sales, for that matter. That is no longer true. In fact, in many neighborhoods, that’s all that’s there. Therefore, foreclosed or distressed sales represent the actual value of homes in the area and HAVE to be used to appraise other properties. Don’t like it? Get over it. Times have changed and the ways neighborhoods are valued have changed as well.
6. Foreclosures are only affecting the bottom end of the market.
This used to be true. However, while foreclosure rates on the lower end of the market have actually decreased, they’re actually increasing on the upper end. According to Daren Blomquist, vice president of RealtyTrac, the market share of foreclosed homes under $1 million is shrinking, but those among properties valued over $1 million are rising – up 115% since 2007. And foreclosures on properties valued upwards of $2 million have increased by 273%. While some well-known jet-setters have melted down and lost everything, others are choosing to strategically default. They see it like liquidating a poorly performing portfolio – they have enough resources to cut their losses and move on. Historically, banks have been reticent to foreclose high-end homes and absorb a large loss, but defaulters are now forcing their hands and mansion foreclosure rates are moving on up.
We have seen $2,000,000 homes foreclosed upon only to return to the Market for $1,000,000 to $1,500,000
Myths control behavior, and this has never been truer than in the housing market. Savvy agents will work hard to educate their clients, debunk myths, explain market trends, educate with solid facts – and actually close transactions.
My personal opinion: don’t hold your breath.
Banks have learned that if they control inventory, they can affect local prices. By releasing homes in measured amounts, they realize higher prices than if they released a glut of homes. In addition, they’ve learned that if they can mitigate their losses by agreeing to a short sale, everyone wins.