While defaults have begun to level off, at least temporarily, foreclosures remain a significant force in most California real estate markets. This is bad for homeowners, the economy, and our financial institutions. But it is important to remember that it is fantastic for buyers. Just three years ago affordability in many parts of CA fell to levels where as few as 2 percent of the population could afford a home in the area in which they lived using traditional financing.
With prices now as much as 50 percent off the peak, that is changing fast. Lower prices have brought buyers back to the market in droves, with home sales increasing from a low of 19,145 units in January to 35,202 in June. In June, 41.9% of sales were properties being resold by banks after foreclosure.
The buyers are back, they’re looking for bargains, and they believe the foreclosure market is where to find them. Nonetheless, foreclosures still scare most Realtors. The thought of spending four months trying to close a short sale, wading through bank-specific sales contracts, or taking on the risks of buying at a foreclosure auction can certainly be sobering. But buyers aren’t demanding any of these things. They just want a bargain!
Many Realtors I speak with tell me that they explain to their clients that foreclosures aren't bargains. The problem with this is they come across without much, if any, credibility on this point. It sounds too self-serving, likely because it is. So what is a Realtor to do? Here is my simple 4-step plan for giving buyers what they want while not necessarily having to do a foreclosure transaction:
- Commit to knowing local foreclosure activity as well as you understand local MLS activity. Watch foreclosures from filings through auction outcomes. You'll be amazed at how much you can learn about the fundamentals of your marketplace and what is likely coming to the MLS in the months ahead.
- Display your knowledge by adding foreclosure listings to your website and by touting yourself as a local foreclosure expert in your marketing. You need to do this with some care. Remember to treat homeowners in foreclosure with sensitivity. You should never simply hand out addresses of foreclosure properties unless you are ready for calls or visits from angry homeowners.
- Show foreclosure comps to all of your clients. Use them to get listings priced to sell and get buyers off the fence by removing the fear of the unknown. With a little practice, you'll also find you can easily predict from current foreclosure filings what the next 6 to 9 months have in store.
- Explain the risks around buying foreclosures to your clients while also pointing out traditional listings that are equal bargains without the headaches. The truth is that most buyers don't want the agony of waiting for a short sale approval, don't have the cash to buy at auction, and may not want to deal with the deferred maintenance typical of REO listings. By taking just a little time to learn and demonstrate your knowledge of the local foreclosure market, and by using that knowledge to help your clients find real bargains, you may find that you rarely have to do a foreclosure transaction. And even when you do, you are far more likely to have a buyer that is onboard for the duration.
I'm a firm believer in the 80/20 rule. In the case of real estate, 80 percent of the transactions certainly go to 20 percent, or less, of all agents. Right now, far fewer than 20 percent of agents have a clue how to deal with this market. By following these 4 steps - by getting a clue on bargain hunting - you may find that foreclosures and price declines are the best things that ever happen to your business.