Is it wise to limit a home search to distressed properties?

Many prospective home buyers believe if they want to get the deal of a lifetime in this market they need to focus on distressed properties, such as foreclosures or short sales, in which the lender accepts less than the mortgage amount. By focusing on just distressed properties, these buyers are making mistakes, I will detail below. 

The number of distressed properies on the market has changed the makeup of the real estate inventory. It used to be when you would think about the selection of properties you were looking for, it would be either resales or new construction. Now, you have to go up one level. There are a number of choices within the resale market – the owner-occupied, bread-and butter, market-rate homes, or, you can go down the distressed property path.

There are a lot of choices for those shopping for a distressed property. But not all distressed properties are created equal. There are short sales, REOs (real estate owned or bank-owned foreclosures), and now we are seeing a lot of HUD properties. I’m seeing a huge increase in the volume of HUD contracts.

Buyer's shopping for distressed properties should have different expectations for the type of distressed property they are shopping for. If you are considering a short sale, the bank may respond to you very quickly, or it may respond very slowly. In some cases, it may not respond at all. We would counsel all buyers looking to buy a short sale regarding what a long process it can be. If you are in a hurry, you are probably going to be disappointed if you are set on buying a short sale.

Another common perception among many consumers is that they will always get a steal when they buy a distressed property. I think there is a common misperception that distressed properties are always screaming deals. Part of it is because there is so much in the media about  Sometimes they truly are screaming deals. But distressed properties in and of themselves are not always screaming deals. Buyers of distressed properties often want to get X percentage below the list price. The flaw of that strategy is the assumption that the list price is a valid starting point. Sometimes it’s a great deal at 100 percent or 102 percent of the listing price. It is very common for someone relocating from a bubble market like Las Vegas to expect buy at 65 percent of the list price. Guess what? If they try that strategy in a market like Boulder, they are never going to buy anything.

Other buyers are choosing to look solely at distressed properties in their home searches. Let’s say that distressed properties account for roughly a third of the inventory right now. If you decide you only want to look at distressed properties, you are limiting yourself to a third of the market. That means you are ignoring two thirds of the market. As owner-occupied homes have to compete against the distressed properties, it affects their property and price. What you should be saying is that I want a house that fits my budget, fulfills my lifestyle needs and is a good value. That way it doesn’t matter whether it is a so-called “distressed” home or a home sold by an individual owner.

If you are looking to buy a home, our 8z Real Estate team has agents that are experts in their market areas.  A market expert can take into account the real estate needs of your family and show you the homes in the condition, with the specifications you need, at the best possible value.  Just let the 8z team know if you need help buying or selling a Colorado home.