Foreclosures sell at 30% discount
Published June 30, 2010 | 
NEW YORK (CNNMoney.com) — Foreclosures accounted for a third of all sales — and sold at a nearly 30% discount — during the first three months of 2010.
According to a new report from RealtyTrac, the marketer of foreclosed properties, 31% of all sales were foreclosures. And homebuyers purchasing those properties paid a whopping 27% less, on average, compared to sales of non-distressed homes.
These foreclosure sales include properties sold in short sales or after a bank repossession, known as REOs in industry terms. It does not include transfers from borrowers to banks, as in a sheriff’s auction.
REOs, those homes already taken back from borrowers, commanded lower prices than short sales and other pre-foreclosures. The average REO sold for 34% less than conventional sales while pre-foreclosures averaged only 15% less.
Part of the reason for the bigger price cut for REOs is that many of them come to the market in poor condition, their previous owners either unable to or unwilling to maintain them.
Foreclosures have become a dominant feature of many real estate markets, finding willing buyers among young bargain hunters and savvy housing market veterans.
During 2009, more than 1.2 million property sales involved foreclosures. That grew 25% compared with the year before, and 2,500% from 2005.
“That number boggled my mind,” said Rick Sharga, a spokesman for RealtyTrac. “A 2,500% increase over a four-year period surprised even us.”
Foreclosure sales were highest, expectedly in the bubble states. In Nevada, for example, they represented nearly 64% of transactions. And that’s actually an improvement over the 75% of all sales during the first three months of 2009.
Surprisingly, both Massachusetts and Rhode Island had higher incidences of foreclosure sales than did the bubble state of Florida, at 42% vs. 39%.
“Massachusetts and Rhode Island were two of the only Northeastern states that racked up unsustainable price increases during the boom,” pointed out Sharga.
Lenders have been trying to manage their inventories of foreclosed homes to prevent them from flooding the market and dragging down prices.
“It will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration,” said Saccacio.
Sharga said the impact of foreclosure sales on the rest of the homes for sale can be very strong. He cited Nevada, where the price difference between foreclosed properties and conventional sales is very narrow, only 17%.
“That state had such a high incidence of foreclosure sales it managed to depreciate the entire inventory there,” he said. 
Home Buying Secrets for the ‘Average Joe’
Published June 18, 2010 | Clients include international conglomerates, start-up ventures and entrepreneurs, multi-national corporations, land charitable organizations, government officials and others, but he also offers insight for the ‘Average Joe’ — home buyers who need all the help they can get right now.
Mermelstein’s “Home Buying Secrets for the Average Joe” are a timely example of his insight for buyers.
• Study – Do your homework before you buy. Review the prices of comparable homes in the neighborhood, which can be found on websites such as Zillow.com, PropertyShark.com, StreetEasy.com, HouseValues.com, Trulia.com and others. Keep in mind these numbers sometimes trail the market by several months. A real estate agent can provide the latest sales data.
• Cure your credit – Today’s best mortgage rates require a credit score of more than 700. Learn how to boost your credit score before you apply for a mortgage. Not only will a low credit score cost you more in terms of the interest rate on your mortgage, it could also prevent you from obtaining a mortgage.
Go to AnnualCreditReport.com, the only federal government-sanctioned service for obtaining a truly free credit report from one or all three of the major credit bureaus. On AnnualCreditReport.com, select your state and hit the red “Request Report” button and follow the instructions. The report is free, but you will have to pay a nominal fee to get your credit score.
• Bid low – In many of today’s buyers’ markets you can offer 10 to 15 percent below the list price because prices are based on contracts signed three to four months ago. List prices don’t necessarily reflect the most current values, especially in markets still on the decline, according to Mermelstein.
• Consider a ‘Lucky 7′ loan – Take advantage of the lower interest rates available with a 7/1 adjustable rate mortgage (ARM), when compared to a fixed-rate 30 year mortgage. The interest rate on a 7/1 ARM is fixed for seven years. In the eighth year the loan resets as an ARM. Just be sure you know what the margin, life cap and periodic caps will be beginning in the eighth year to avoid surprises. Use those seven years to reduce debit and increase your income in preparation for what is likely to be a much higher rate than your starting rate.
Mermelstein also says to consider 30/15 year mortgages which are fixed for 15 years, amortized over 30 years and due in full in 15 years.
These and other mortgage options come with lower starting rates as a hedge against interest rates rising in the near future.
• Get pre-approved – Go beyond prequalifying for a mortgage, which only tells you what you can likely borrow. Get a pre-approved mortgage and you’ll know your home price shopping parameters. You’ll also present yourself to the seller as a serious buyer. Financing in hand will also help level the playing field with all-cash buyers and investors and it will help you negotiate a better purchase price.
• Consider a newly built home – The new home sector has been harder hit than resales. Concessions and reduced prices are the norm. The latest U.S. Census Bureau data reveal that sales of new homes fell for the fourth consecutive month in February, to a seasonally adjusted annual level of 308,000 sales – a year-over-year decline of 13 percent and the lowest level ever. Just be sure to check out the reputation of the builder.
• Inspect everything – Get a home inspection for a new home, a resale home, a nearly new home or a very old home. Always. Just because it’s new doesn’t mean it’s defect free. Hidden problems can torpedo the value of your home.
• Read the title report – Make sure that any new additions or construction to an existing home are fully permitted and recorded with the local municipality.
• Check the appraisal – Likewise check the appraisal report for any oversights, missed features or other errors that could cause the property to be undervalued.
• Negotiate – Don’t be afraid to dicker. It’s a buyers’ market. Concessions are available from both new home builders and existing home sellers. Ask for help with the closing costs, repairs, even furnishings and other perks. Motivated sellers have much to offer.
• Don’t skimp on the help – If you look for the least expensive attorney, real estate agent, inspector, etc., you will get what you pay for. Ask family, friends, co-workers, realty professionals and others you trust for referrals and then carefully vet them.