Foreclosures - can they be bought for pennies on the dollar?

Consumers are reading the papers and watching the media report about the increase in foreclosure rates. It creates an investor frenzy in hopes that real estate can purchased for pennies on the dollar. Well I researched the foreclosed sales in one area of the Nashville market in hope of finding the answer to the question "How low will the banks go to rid their books of foreclosed properties?" I decided to let the market give me the answer I was looking for.

I narrowed to a single MLS area to avoid having the location create a new variable. I looked back to the foreclosure sales over the past 6 months. I had to get a baseline for this time period for all closings to compare my results against. Here is what I found:

Baseline:

• There was 686 closings in the subject area in 6 months.
• The average list price vs sales price was 96.7% (the properties sold on average for 96.7% of the list price).

Results:

• There were 66 foreclosed properties sold in the same period. (10% were foreclosures)
• The average list price vs sales price was 95.9% (the property sold on average for 95.9% of the asking price)
• However, the average original list price vs sales price was much lower at 87.6%.
• The highest percentage knocked off the price was 50%.
• Some properties actually sold for more than list - indicating that the banks would not accept what the REALTOR was advertising the property for sale or mandatory repairs were required.

Analysis:

The bottom line is that there was a marginal increase in the negotiating room between all the homes sold and the foreclosed homes. Considering the negotiation is no longer emotional when the bank is involved versus a homeowner I am surprised the gap is not larger between the two groups. One reason for this could be that the bank owned properties are setting proper price points on their properties and further price negotiations are similar to those of individual owned properties.

So it is worth the increased hassle to buy a foreclosed home? That is a question only the investor of prospective home owner can answer. This analysis has not taken into account how discounted the foreclosed properties are in comparison to resident owned properties, but whether a deal could be had in light of the asking price. The number of days that foreclosures are on the market was about 25 days less on average so it does stand to reason that they are better overall deals, but consumers should not have the false pretense that they can go in and offer cents on the dollar of list price and buy properties, at least not in Nashville area.

If you would like analysis of a certain market, please contact the Grumbles Team of EXIT Realty of The South. Our team has the experience and expertise to assist you with your real estate transaction.