Real estate agents have traditionally used the term “distressed” when referring to properties that were not good old fashioned straight sales. Houses described under the “distressed” moniker included properties that either had been foreclosed upon (bank owned), were short sales, or were court ordered sales (probate and bankruptcies). Because “distressed” properties were seen as an abnormality in the market, [if for no other reason than the infrequency that they entered the market], real estate agents and appraisers alike treated (i.e. valued) them differently than non-distressed houses; specifically valuing them below “normal” sales. And historically these lower valuations were warranted. This was because distressed properties typically had been neglected and consequently were in need of much repair, at best. At worst, the house had been totally stripped of all appliances, light fixtures, outlet covers, door hardware, plumbing fixtures and carpet; requiring enormous additional expenditures.
Today, the term “distressed” has lost its impact. With “distressed” properties now accounting for nearly two-thirds of the sales, clearly the bulk of housing inventory is distressed. Does that mean that the majority of houses for sale today has been stripped or is in need of massive repairs? No.
Today’s housing market is unlike any that preceded it. Short sales and foreclosures continue to flood the market. And, consequently, these types of transactions make up the majority of each month’s sales – in both units and volume.
Last week I accompanied clients to view eleven properties for a prospective purchase. Nine of these properties were bank-owned properties; one was new construction at a fire-sale price; and the last one was a “normal” resale. [Note: we had eliminated all short sales as potential candidates due to my clients’ purchase horizon]
In reference to the bank-owned properties I had forewarned my clients to be prepared to experience distressed properties. I explained that it is not uncommon with foreclosed properties to encounter greatly neglected houses in need of many costly repairs. My clients said they understood, and we began our day.
Much to our pleasant surprise we encountered almost none of the frightening scenario I had painted. Only a couple of the homes had items missing, and these were minor – a few light fixtures in one; the carpet in another. The majority of the REOs we visited showed just fine. Of course they were vacant and contained no furniture, but otherwise they showed fine. If I had to name one common area of neglect it would have to be landscaping (i.e. dead lawns due to the water being shut off).
We hear all the time about the “great deals” that can be found with foreclosures. Often these deals came with the additional baggage of costly repairs and improvements. This is no longer always the case. Bank owned properties and REOs now exist at every price point, as well as all conditions of upkeep.