Selling a home in today’s real estate market can be an eye-opening experience for many sellers. Many acknowledge the changing real estate landscape, but since your home is clearly “the best in the neighborhood,” short sales and foreclosures are often dismissed as irrelevant. This perception is particularly true in areas where short sales and foreclosures account for a high proportion of total home sales.
To effectively compete with this trend, it is critical to understand how these types of transactions impact local real estate markets. Zillow.com recently published the results of its research on the percentage of home sales in foreclosure and the associated “foreclosure discount” in different real estate markets across the country. This research illustrates the point that foreclosed home sales actually create two separate markets and that home buyers tend to demand a discount on top of the physical damage often seen with these homes. All data is from the third quarter of 2009:
Foreclosure Sales – Metro Area Foreclosure Discount as a % of All Sales:
Pittsburgh, Pennsylvania 59% 10%
Cincinnati, Ohio 39% 15%
Columbus, Ohio 38% 19%
Minneapolis-St. Paul, Minn. 34% 26%
Phoenix, Arizona 29% 58%
Denver, CO 27% 25%
Los Angeles, CA 27% 39%
Kansas City, Missouri 25% 29%
Riverside, CA 25% 66%
San Diego, CA 24% 39%
San Francisco, CA 24% 39%
Las Vegas, Nevada 23% 74%
Washington, DC 21% 21%
Sacramento, CA 19% 50%
Seattle, Washington 19% 17%
Portland, Oregon 18% 18%
Source: Zillow.com
Based on its survey results, Zillow reports an average “foreclosure discount” of around 28%, which is an important factor for other home sellers to consider. For example, in the Denver real estate market where the foreclosure discount is reported to be 27%, that $146,000 foreclosure sale down the street might suggest that a similar clean, well-maintained, trouble-free home in the same area could be worth as much as $200,000. We can’t do much to change the fact that these types of real estate transactions are influencing many real estate markets across the country; what we can do is recognize the problem and figure out how to successfully market and sell homes in this environment. Here are some common sense tips for home sellers who want to successfully compete against foreclosures and short sales:
First, set a competitive price for your house. This does not necessarily mean that a down the street foreclosure sale is the best compensation for your home, but it should be noted.
· Present your home in optimal conditions. Foreclosures and short sales tend to be in relatively difficult shape; People who lose their homes often neglect routine maintenance for quite some time before actually losing their home. Your home has to clearly outshine the competition in this area. Doing so will go a long way toward getting past the “foreclosure discount.”
Hire a real estate agent who outperforms the competition in the market. Simply putting a yard sign and flyers in a box is not enough. To stand out and differentiate your home from sub-par competition such as foreclosures and short sales, your marketing efforts must include an intense online focus with quality details i.e. virtual tours, lots of good photos, listings improvements, detailed descriptions, etc. . . Make it clear to potential buyers that there is a difference in quality.
· Offer smaller incentives that highlight some of the advantages your home offers. Foreclosures and short sales tend to pose a higher risk to the buyer, as these homes have not been taken care of, may have been vacant and neglected for a long time, and may even be difficult to inspect thoroughly because utilities are out. cut. Offering things like a home warranty, pre-sale inspection report, etc., can draw attention to the fact that your home is a better value because it represents higher quality and less risk.
· Make sure you can offer a reasonably quick close. Particularly with short sales, time can be a deciding factor for many homebuyers. Waiting for a response from the bank, sometimes for months, is frustrating for many potential homebuyers and makes these types of sales challenging. With the federal tax credit deadline approaching, time will become more and more of an issue, and it’s an area where you can easily excel.
These are just a few tips on how home sellers can effectively compete with foreclosures and short sales. The main focus should be to create a separation in the points of interest that are important to homebuyers and to market those differences in the most effective way. Understanding the effect these types of transactions have on the residential resale market in your area will allow you to plan your home sales strategy properly and beat the dreaded “foreclosure discount”!
