As I watch my list of Notice of Defaults / Foreclosures rise and rise each month, I have to wonder just how devastating the effect of this will be on surrounding homes.
Here is a quick overall picture on what usually happens.
As a homeowner starts to struggle the first thing that happens is sometimes what is called "deferred maintainence". We can call it neglect for lack of a better word.
As they continue down the spiral path towards foreclosure the yard goes unkept, the lawn unmowed, the weeds grow high, the garbage piles up, the windows go uncleaned.
They say the first thing that happens when you fall behind is you lose that "Pride of Ownership".
No matter what, one of three things are going to happen with with this house:
- They might be able to refinance and catch up - maybe.
- They might put the property up for sale - maybe a short sale?
- They might let the property go to Foreclosure at which it will either be bought by a bidder or retained by the bank (REO).
OPTION 1, REFINANCE:
If they can refinance, perhaps they can also catch up on the Pride of Ownership items they've been neglecting.
OPTION 2, LISTED:
If the property is listed for sale, it's under duress, it's not because the owners feel the time is right and they want to move up to a larger home with better schools. It's a fire sale. They are looking at getting out as quick and cleanly as they can without spending another dime.
- It isn't going to have new paint and carpets is it?
- It isn't going to be neat and clean is it?
- And it certainly isn't going to be staged!
We all know, a staged home will generally sell faster and for more than a similar home - Right?
"Mr. and Mrs. Homeowner... I know you can't afford to pay your mortgage but I believe your home will sell faster if you pay $x,xxx and have it professionally staged". Yeah, that's a likely conversation that'll never happen!
OPTION 3, FORECLOSED:
Now what? Either the bank owns the property and lists it with a local broker or an investor type now owns it. While the Broker may pay to have the lawn mowed they are not going to spend the big bucks to bring the property up to snuff with the regular homes around it.
In Options 2 & 3 above - the home will be sold to someone eventually, but it will also be sold at something below it's true market value potential.
The home next door, the home down the street and the home a 1/4 mile away all will be unintentional and innocent bystanders.
The Sales Comparison Approach of Appraisal has to take into account the recent transactions in the surrounding areas. While a certain amount of explanation on the appraisers part may help shift the blame of declining values in the neighborhood to foreclosure activity, it's temporary at best!
The Truth is - your home's value is determined by and and can be positively or negatively effected by, the homes and homeowners around you. And unfortunately that is something you have absolutely no control over!
For related reading see: The Foreclosure Crunch
This post brought to you courtesy of Mike Mueller.
Feel free to ReBlog or ReTweet as you like as long as you credit the source (him).
Did you know? He's for hire! He builds Blogs, Graphic Images and Widgets and Facebook Pages and besides… He knows lots of really cool stuff.
| Hire Mike (925) 456-4567
|
|
Thanks for your insight, Mike. We're seeing the same thing here in Florida as homeowners and especially investors who took advantage of interest only, adjustable, or 100% loans when market values were rising are now finding the current value less than their pay-off. Since our homeowner's insurance has doubled and tripled in some areas many homeowners are having trouble with the increase in their monthly mortgage payment. When they try to sell they are realizing what a predicament they're in.
We have a huge inventory of homes on the market making it harder to sell and almost impossible to sell if the home is not priced competively based on recent sales.
Thanks for the good post as always Mike. This is such important information for all consumers and even real estate professionals alike to know and understand. Since defaults are on a rise it is important that we all position ourselves to help our future clients from this kind of business. Thanks again for the solid blog.
Thanks Elizabeth!
And since you mentioned it, "...if the home is not priced competitively based on recent sales" will that not in turn deed upon itself, further lowering what the next comp report suggests?
Jacob - coming from you that is indeed a compliment! Thanks!
I suspect that here will be an upside to getting these mortgage issues reconciled. I suspect the sooner the better. There have always been and will always be foreclosures. After the huge surge in sales and prices, there were many that got into the market believing it was their last chance before things became totally unaffordable. Besides many were speculating that the market would continue and they would make some huge gains. Greed can be a very strong motivator. But these people had a lot of pushing from the industry and the press. They were encouraged to try at every turn. Not so different than the huge surge in the stock market in the late nineties. Many were burned by over speculating and not diversifying. Buying investments and home buying are not too dissimilar.
Once all this negativity dies down, the market will resume as it always has. But real estate continues to provide opportunities for many even in this down market. In my view it is a great time to buy and get into the fray, especially first timers. When prices start to increase again, I think they will be glad they did.
Great post. I really like your Snap additions. They add a lot great details to your blog.