One of the biggest factors affecting home prices throughout the country is the increasing tide of foreclosures. Foreclosures are one of the ugly downsides of the real estate wave that hit the country in 2005-2007, and no market seems to be immune: Of the 683 homes sold on Whidbey Island in 2010, foreclosure homes accounted for 120 of the sales, or about 17.6% of the sales for the year. With only 8% of the homes For Sale listed as foreclosures, this means that foreclosures are selling at twice the rate of other homes on the market.
Foreclosed homes are also selling faster than other homes on average: the Days-on-Market average of 72 days for foreclosed homes is almost half the 135 day average for non-distressed (foreclosure or short sale) homes sold in 2010 on Whidbey Island.
The downward pressure on homes prices is very real, and while it negatively affects sellers — especially those who bought since 2004 — buyers will find the prices of foreclosed homes on Whidbey Island means good news for them: Foreclosed homes on Whidbey Island sold for a median price of $179,500 in 2010, or 32% less than the median price for non-distressed homes of $265,000 in 2010!
Does that mean every buyer should rush out and look for foreclosures? Not necessarily, in my opinion. While I sold quite a few foreclosed homes this year, the one thing they all had in common was that none of them were move-in ready. All required a major deep cleaning, and some required major repairs. The worst foreclosure I sold this year required all new appliances (including a new furnace), plumbing and lighting fixtures, paint, flooring and some subfloor and wall repair. The best foreclosure I sold required new paint and flooring and some minor wall repairs.
The biggest challenge with buying a home that immediately needs repairs, is getting financing. Traditional VA financing is difficult on foreclosures, unless the buyer has the cash in the bank to complete all the repairs. Rehab loans work in some cases depending on the type of repairs required (replacing a furnace may offer some energy-saving incentives as well). The bottom line for any buyer though, is to get an accurate estimate of the cost of the repairs going in, and know where the money for the repairs is going to come from before committing to buy a foreclosed home!