The Distressed Property Market
In any given market there are always a certain percentage of homes or homeowners who are distressed. According to most investor publications and common knowledge the percentage is somewhere around 1 to 3% in a healthy market. Recent changes in the Real Estate market have pushed that number many times higher. In some areas as many as 1 out of 10 homes are at some stage of the foreclosure process. Add to this number, those that are not in foreclosure but may be forced to relocate, are involved in a divorce, may have had a death in the family, know they owe more than their home is worth and many other reasons for distress and the percentage gets even higher.
We have seen foreclosures of 50% or more in Florida, California, Nevada and other states. These types of numbers are unheard of in US history.
In the past, the average Real Estate Agent typically did not handle pre-foreclosures, probate, short sales and other seemingly complicated distressed situations unless they absolutely had to. When they did have these situations arise, they typically had to rely on the advice of others and often had trouble with the short sale process and specific considerations and details associated with distressed deals.
Given the market conditions many communities are facing, the need to understand distressed properties is no longer a luxury. This has become a requirement for every agent. In some subdivisions as many as 20% or more of the properties active on the market are distressed (pre-foreclosure, short sale, bank owned). While only 20% of an area's listings may be distressed we have seen as high as 80% or more of an area's closings come from distressed properties.
The distressed market has violently-collided with the traditional real estate market. Many times the most aggressively priced properties in a neighborhood are those that are distressed leaving the agent who has only traditional listings at a competitive disadvantage. In today's economic climate there is no longer a "traditional" and a "distressed" market. The two have become intertwined into what is the new real estate market that agents, mortgage brokers and homeowners with whom they are faced..
No market is immune, regardless of what segment of the market you focus on; there are distressed homeowners in your target area. Distressed properties exist in all market segments in all price points and in every state in the country. With foreclosures at an all-time high and expected to get even higher, there is no category of residential property that will not be affected. In fact the fastest growing category of residential foreclosures in early 2008 is a category that was previously thought to be immune from distress-million-dollar-plus homes.
The overwhelming challenges in the residential market will soon begin to affect commercial property and as commercial becomes an issue more residential will be an issue. In some areas we have already seen this phenomenon and we will continue to see it as more and more residential properties become vacant. This spiral downward in property values will take time to play itself out at which point we will see stabilization in the market.