Foreclosure Homes in Cincinnati. Are they a Good Deal?

Buyers often tell me that they want to be sure to explore the foreclosure market when we begin our home search.  Enthusiastically armed with more fantasy than fact, they are quite sure that there is a bargain to be found because they over heard their co-worker telling the story that their uncle’s, cousin’s oldest child, three states over got a $350,000 home in great shape for only $150,000!  Baloney.  T.V. commercials are currently running that show beautiful homes in wonderful condition, bank-owned, that can be bought for pennies on the dollar. My advice: Turn the channel.

Because there are so many more homes in foreclosure, and the nightly news is focusing quite a bit of attention on this very real national problem, let’s look at some facts.

Stats to Consider

Per the Greater Cincinnati Multiple Listing Service:  in the last 12 months of residential sales, 12/10/07 – 12/08/08 (single family and condos) of the 18,695 homes that have sold, 4729 were lender or government owned.  
25%     1 in 4.

Going back to the same time period (12/10/06 – 12/10/07)  22,404 homes sold, and 4084 were lender or government owned.  18%  or less than 1 in 5.

Out of those sales, were there deals? Sure.  Did any of those homeowners buy a nightmare? Absolutely.

Speaking of “Deals”

Early on in what we will call our “current real estate environment”, many of the foreclosure properties were priced too high. The lender’s learned quickly that as their inventory started to mount, the prices better come down, and they better do a good job of pricing closer to the declining market value. This is evidenced by MLS stats that show that the list to sales price ratio is currently at 95%, when calculated using the “average” list and sales price.  In other words, no $350,000 homes for $150,000.

Of all the foreclosure homes I’ve toured with customers, and I’m talking hundreds, only 2 have been ready to be moved into with little more required than turning on the utilities.  All the others were, unfortunately, going to need more than new carpet and a fresh coat of paint.  No, not even close. Filthy, greasy carpet, holes in walls, ripped up vinyl, kitchen cabinets ripped off the wall, fireplace inserts torn out, the fireplace mantel ripped off the wall, light fixtures gone, interior doors taken, shower nozzles and bathroom fixtures removed, all appliances including garbage disposals ripped out, broken windows…..and mold. Plenty of mold.

When you buy a foreclosure, you buy it “as is”.  You do generally have the opportunity to inspect the home, but there is no recourse should you miss something in the inspection, and the problem materializes after the sale.

Does She Have a Point?

My point is this: be realistic.  Are there people with a credible story to tell about the “good deal” they found in the foreclosure market?  Of course.  But the combined advice of the realtors® of The RealCincy Group is that we want you to ignore the “urban myths” and decide how much you are willing to endure to get that bargain. If you have any time constraints, like a home that is under contract that you need to vacate or a rent agreement that is about to expire, this may not be for you.

Most of us learn home maintenance by trial and error.  First time home buyers know that they will need to learn how to “tighten this”, and “caulk that” as time goes on. When buying a distressed, foreclosure home, there’s probably going to be quite a bit of work to do.

So before jumping into this market, consider this: how handy around the house are you? Do you have friends and relatives that work in the trades that you can put to work if you promise to feed them?  By the time you paint, carpet, fix, replace, repair and hope no latent defect materializes, would you be better off just buying the nicest home on the market in your price range from a private owner or builder?  Something to consider!

If you do decide to proceed with making an offer on a lender owned property, be sure to go to the next article about the process.  “What to Expect When Buying a Foreclosure Property”.  If we’re going to do this, we should do it right!