Distressed Properties Myths

We all have been in this very tough real estate market for many years now, too many years if you ask me! Here in Park City, Utah, we are in a unique market, in that most of our buyers are cash buyers, and most are purchasing a second, third, or even a fourth home - primarily for vacation use, and maybe some nightly rental use. So obviously we are dealing with a very high-end, very sophisticated, intelligent clientele. But I am continually amazed, at how blinded these potential buyers are when they see what they think is a great opportunity in a Short Sale, Foreclosure, Bank Owned and REO Property.

The reality is that these distressed properties are not always the best deals out there. At least, not from what we see in our little ski town real estate market. In fact, sometimes they are simply branded and marketed by the listing agents as the best deals in the market, because they are in short sale, or are now bank owned. Seems like a no brainer that they would be the best buys, and the buyers totally fall for it.

Going after a short sale property can be a nightmare, unless you have an tremendous amount of patience, and flexibility in timing and finances. If you are a cash buyer, maybe you have that advantage. With the bank owned properties, you are often buying a mess, and will soon discover what has been removed, damaged, missing, or never finished in the first place. Again, you will need a lot of patience, and financial flexibility.

The myth is that these are the best buys, and that you can pick these up at pricing well below the current market values. Yes, that can be the case, and often is. If you are working with a local realtor, who knows the area, the market, and the history of the product, then you might navigate through the sea of uncertainty and find a great buy.

In my opinion, from what I have seen these last couple years is that the short sales always sell at market value. The seller just owed way to much - either from buying at the height of the market, or over leveraging their property with second mortgages, and HELOCs. It looks like a deal because the bank agrees to take less than what is owed to them, but really they are still selling at current market value. And the bank owned properties often need a lot of work, rehabilitation, repairs, maintenance, etc. Add those costs to the purchase price, and you might end up not too far of from what other properties might have sold for. Often a distressed property is just that, a distressed property.

Here's the truth, and good news in all this. The availability of these distressed properties have created a strong competition for all the regular sellers out there. For current sellers, they are either competing against the short sales and bank owned offerings, or they are battling those short sale and bank owned properties that have closed, and are now their direct comps. Either way, they cannot escape those facts. So now you have all the regular properties for sale, who have their values pulled down by the distressed properties.

In our Park City market, many of our owners have either very low mortgage balances, or they own the property outright with no debt at all. These sellers can compete with the distressed properties. And they often do! If you are a buyer, you might be able to get an incredible deal on a well cared for, well built, nicely designed, nicely finished, nicely furnished and well maintained home, and not go through the nightmare process associated with the distressed properties. And, we are often surprised as just how low a seller is willing to go, once a real deal is placed in front of them!

So, my advice. Make sure you are working with a great realtor. And make sure that realtor really does know the area you are interested in. Be sure they are experienced, and knowledgeable. Ask your realtor on their opinion on what the best deals are. Focus your search on what is most important to you, then break that list down to the better deals. You don't have to get the best deal of the century, to get a great buy. And finally, take a chance, make a move. The time to buy is now!