As REALTORS®, we look at foreclosure properties - running the gamut from decently maintained to neglected, vandalized, "trashed" - and we try to estimate their value, based on the amount of the loan foreclosed on, the neighborhood comps, the amount of work that needs to be done (is the house missing just the kitchen refrigerator, or all the toilets? does it have light fixtures? are there gaping holes in the sheetrock? was it in the middle of a renovation when it was foreclosed on?).
Our buyers look at foreclosed properties as "a deal" - the best deal out there (not always the case). Buyers ranging from first-time homebuyers to homebuying veterans believe that now is the time to buy a foreclosure. And while that can be true, it depends, of course, on the property and the buyer.
But what is the REAL cost of a foreclosure? When you see these numbers, perhaps you'll agree that foreclosures are not such a good deal after all.
According to a recent report by the Joint Economic Committee of Congress, the average cost of a single foreclosure is around $151,000, divvied up among a number of parties:
- Former homeowner (foreclosed hoemowner): $7,000
- Lender: $50,000
- Local government: $19,000
- Impact on neighboring home values: $75,000
- Estimated total cost of one foreclosure: $151,000
The article goes on to quote The Mortgage Bankers Association (MBA), whose May 2008 report stated that the lender always takes the biggest hit: "While losses can vary widely, several independent studies find them to be generally quite significant: over $50,000 per foreclosed home or as much as 30 to 60 percent of the outstanding loan balance."
The advent of and the growing popularity of the short sale seems to be helping some homeowners and lenders with the crisis of spending associated with foreclosing. The impact on the neighboring home values is still there, but often to a lesser extent. Homeowners and REALTORS® alike are taking proactive steps to educate themselves on short sales to attempt to avoid foreclosure. Additionally, federal tax cuts - and even state tax cuts in some cases, are attempting to help reduce the volume of homes on the market (inlcuding foreclosures) - it seems that the stabilizing of the housing market is indeed one of the keys to our economic recovery.
Maura Neill, ABR, CRS, MA
The Gebhardt Group
RE/MAX Greater Atlanta
10220 Medlock Bridge Road
Johns Creek, GA 30097