The REALity of Foreclosure and Short Sales Effects on SoFla Homes Sales and Purchases
By Shannon Youngs
In 2011, the Florida housing market was rocked further by the foreclosure scandal which involved bank employees (nicknamed “robo signers”) signing off on thousands of cases without knowing any details about the properties. Foreclosure sales were suspended while evidence was being investigated in the scandal. As a result, there was a false drop in foreclosure filings and sales, and the true state of foreclosures are just now beginning to rear its ugly head in 2012. According to the RealtyTrac listing firm, in Broward County 2,746 foreclosure lawsuits were filed January through March—up 2% from the same period of 2011. Foreclosure filings jumped 62% in Palm Beach County. Total filings in Florida rose 26% from a year ago—the first increase after five quarterly declines.
But, when asking your local experts to discuss this white foreclosure elephant in the middle of the room, you may be surprised that this potential wave of incoming foreclosures may not affect the local market as you think. The consensus is that the banks have learned from their previous mistake of flooding the market with foreclosures, and that the banks have actually gotten wise on how to make a good dime off of them. Prudential Florida Realty’s Lisa Flickstein chimes in on the matter, “The banks know EXACTLY what they’re doing as far as foreclosures. Consumers hear ‘foreclosure’ and think they could get a good deal.” But, buyer-be-cautious Flickstein says, “That property may have been vacant for 3 years, or stripped of all of its appliances and lighting fixtures. The banks have gotten smarter on how they put these foreclosures up for sale though.” She explains, “They put the listing out for a limited time and ask that people put in a best-offer bid. What I have seen happen is a bidding war is likely. This means people are, for example, buying a deteriorated house for around $536,000—not a horrible price, but not a steal either.”
Local Remax Realtor Brett Greene, who serves both Broward County and Palm Beach County, couldn’t agree more about the banks getting smarter about foreclosures. “Back a few years ago, banks thought the best solution was to slash the prices of the foreclosures just to unload their defaulted properties.” He continues, “What the banks discovered was that they just killed the local property values, and that they were—in fact—losing money on these foreclosures that have now doubled in their original foreclosure sale values. It was a double whammy for them.” Greene now sees the banks being more gradual on their foreclosure listings and using bidding techniques Flickstein discussed to get the most for their properties.
Is a Short Sale Right for You? - In 2012, short sales in Coral Springs, Coconut Creek, Parkland, Boca Raton and Delray Beach are white hot. Local Realtors are experiencing as much as 50% of their sales coming from short sales. So what is all the hubbub about this short sale trend? Is it for you? Lenders require listing with a real estate agent for short sales and the homeowner generally does not pay any broker fees (these are most likely being picked up by the lender). Those seeking to sell their homes in a short sale process should not list their home too far below the fair market value, and provide solid comparables and local market data as support. Finally, buyers of short sales should be aware that although the short sale closing process has been streamlined, the process might take many months. Therefore, it’s advisable to put a clause in the contract that allows them to nullify the deal after a set amount of time in case the lender drags their heels on a decision.
When comparing foreclosures to short sales, Kathy Schroeder, a Realtor with Prudential Florida Realty, says that if you are an owner faced with a possible foreclosure, the occurrence of a short sale may save you from the foreclosure financial stain on your credit. “What many potential sellers—and even buyers—don’t know is how hard the local Parkland and Coral Springs Realtors and brokers are fighting legislation in the pipeline that would put a halt to the upswing in the housing market.” She explains that currently, as the legislation stands, if a home is a primary residence and you find yourself in a true hardship (out of work, wife having cancer, etc.), that a short sale could be a completely viable alternative to a foreclosure. “I work with clients every day in these conditions. I help them draft hardship letters to the bank, so that if the house sells for less than what is owed, the owner gets a forgiveness on the remaining balance—even if there are multiple mortgages on the property.” She also explains the legislation fight to keep short sales from being taxed as taxable income, “As it stands now, there is a clause to give a tax break on hardship short sales. We—your local Realtors and brokers—want you to know that we are fighting your fight. Because, the LAST thing someone in a true hardship needs is a tax on a short sale.”
How are Foreclosure and Short Sales Really Affecting Your Property Values? - Unfortunately this current market does not bode well for current sellers in the SoFL market. However, it does allow for some great bargains for potential buyers looking to make the most of the current economy. According to the Palm Beach County Appraisal Office, in Boca Raton, property values have dropped 20-31%. This drop in value has seemed to hit the low-income housing market the hardest. For example, a qualified sale in 2006 selling for $29,000 could possibly go as low as $20,000 in 2012. Greene explains, “The low income bracket is always hit hardest by bubbles like this. They are the last to benefit from the growing bubble and they are the first to feel the burst of the bubble.” The luxury homes are not hit proportionally as hard, but the trend is similar. A qualified sale of a 9.3 million dollar home in 2006 would go for 7.4 million dollars in 2012. Oddly, the trend seems to be reversed for Delray Beach. Low-income housing in 2006 could go as low as $35,000, while in 2012 the same house could go for $26,000—a 26% drop. Bucking the SoFL trend, the market for high-end luxury housing is worse. A house going for 6.95 million dollars in 2006 could go for as low as 2.6 million dollars in 2012. That is a market value drop of 63%!
To top matters off, in both Boca Raton and Delray Beach, the average cost-of-living is 36.4% higher than the national average. Oh, the price to bask in the SoFL tropical sunshine …