About 7 months ago, we moved to one of the foreclosure hot spots in the country, Phoenix. When I was first looking for houses, I was thought I would be able to pick up one of the many short sales, or foreclosed properties. Clearly, there was a large inventory, and finding a lot of listings in the $150K price range was easy.
However, it wasn’t as simple as that. First, it is pretty clear that you are coming to a bank owned property when you arrive. To say that there is no maintenance on the yard, or the outside of the home is an understatement. You could tell from half a block away. Next, the insides were often rough. If there wasn’t a family living there (about 50/50 chance) the appliances would be gone and you would see damage to a lot of fixtures. Clearly you could tell that the prior owners had given up, and decided to take their misfortune out on the house.
After looking at a couple dozen of these choice units, I was losing enthusiasm for finding a deal.
Then I learned the truth. As someone who was looking for a home, there was virtually no chance that I would be able to buy one of these distressed properties. Whether it was foreclosed and up for auction, or whether it was one of the properties where the bank had acquiesced and allowed a short sale, the people who would be buying the home as a primary residence are pretty much out of luck.
First, the bank is usually not in a hurry to sell the property. They have already recognized that the value they are sitting on is worth much less than they have it on the books for. They are willing to wait for months to close and write the property off. So people who are interested in buying much write a bid, prove access to funds, and wait. And wait some more.
The process is rigged. Only investors are successful in buying these distressed properties. The hope that a family might be able to snatch up one of these is pretty much nil.
We ended up spending $100K more, got a nice house in a nice neighborhood that was bought by an investor, cleaned up, and res0ld.
The good news is that the inventory of bank owned properties, short sales, and foreclosures is shrinking. The good news is that means the prices are rebounding, and we got in at a good time.