During the recession, buyers were excited about short sales and foreclosures. If I had a dollar for every first time home buyer who met with us and said, “I want to buy a short sale or a foreclosure,” I would be retired by now. And in most cases, it only took one day out actually looking at distressed properties for them to say “never mind,” because they realized how much work it was going to take to bring them up to good condition. Or sometimes just the long timelines associated with negotiating with an overwhelmed lender would do them in.
That said, on occasion we would find a diamond in the rough. A home whose owner had fallen into hard times but who had continued to maintain the home up until they were asked to leave. These homes were every buyer’s dream! A ton of instant equity and just some cosmetic requirements to turn them into a show stopper.
These so called “diamonds in the rough” are few and far between these days. And for a good reason. The distressed property market as diminished significantly. Just the other day, I shared with some clients that in 2011 almost 40 percent of the sellers that we worked with were in a negative equity position. Translation: They had to write a check at closing to sell their home. It was brutal. I have had selling clients of mine write $20,000 checks to sell a home so they could get to a job opportunity that they could not pass up. Just consider that for a minute. For generations, we have been told that real estate is one of the most sound investments. And it still is, for the long term. But for that 40 percent in 2011, it was hard to believe.
According to Keller Williams Realty International, in 2011 40 percent of all sales nationally were either a short sale or a foreclosure sale. Compare that to the end of 2014 with distressed properties only representing 9 percent of all sales nationally and you can see why those previously mentioned “diamonds” are hard to find these days. And the distressed properties that are for sale these days are generally in pretty bad shape. Take a look at the following chart to see how distressed sales are trending downward:
During the recession, many Americans were affected by the failed economic conditions. Many of them lost their homes. And it seemed that many of them still maintained their homes. Conversely, today it seems that as the economy has improved dramatically, the distressed properties that are available for sale are in much worse shape. They are not for those with a weak stomach that is for sure.
Today’s distressed property market is dominated by investors for either a remodel or, in some cases, a tear down and rebuild. Professional investors more often have the skill set and the resources to tackle even the nastiest distressed property. During the recession, thanks to HGTV, it felt like everyone had decided to “flip this house” and it was a mess. I cannot tell you how many homes that we showed during that time that were what I call “lipstick on a pig.” Essentially the investor who purchased the home threw on some new paint and installed some cheap fixtures and tried to resell the home for a HUGE profit. I am so glad those days are over.
Thankfully the market purified itself thanks to the recovery, and there are really only a handful of flippers around that operate a successful business in our area with a consistently good product. For these select few, the demand today is certainly high for a properly remodeled home. And buyers are glad to pay a premium to get one.
Distressed properties will always be a part of our real estate market. They are not going away. If you would like more information about the benefits and challenges with distressed properties, feel free to email me with your questions.