Buyers are Increasingly avoiding Distressed Properties
Buyers have discovered that it is not necessary to purchase a distressed property to obtain a great deal these days. According to its November 2008 survey, Harris Interactive reported that the number of buyers willing to consider the purchase of a bank owned property or that from a seller needing lender permission (a short sale) has declined. In early summer 2008, 54% of buyers would put an offer in on an REO or short sale was 54%. In November, that amount had lowered to 47%.
The reason for the change is attributed to buyers realizing the down side to purchasing that type of properties. Hidden costs, poor home condition, the complications, uncertainty and delays inherent in short sales have made buyers more wary of distressed home. When sold by auction, the negatives to REOs increase, as there is ordinarily no or only a limited opportunity to conduct inspections or other due diligence before the sale, and that there is no contractual right to cancel after purchase afterwards if the property is unacceptable.
In an ordinary market, the price of distressed properties is adjusted downwards to the point that the benefit equals or exceeds the risks. Now there is not enough price advantage, especially when considering that there may be other properties available from traditional sellers at those same prices, to justify incurring that risk. That is why my advice is to avoid distressed homes at all costs when there is other suitable product available to non-investor buyers. For more information on the data in the Harris Interactive survey, go to www.Trulia.com/city.
– N. Mark Kramoltz © 2015