The Condo Foreclosure Market: Caution must still Prevail

Holding on is making less and less sense for many owners, and that’s why we’ll see the number of foreclosures and short sales continuing to rise. Is this an opportunity for condo buyers? Perhaps, but caution must still prevail, especially with these scenarios. Foreclosure NoticeConsider the following scenario, which is repeating itself in several over-built cities in the U.S.: The year is 2005, and all your friends are making money in the real estate market. You get in the early pre-construction phase of a condo in a city where real estate is booming. You only put down 10% and can simply wait for 2 years while your condo gets built, and meanwhile the market continues its rapid rise. You close on your property with a sweet 5% down mortgage, and plan to resell soon after.

Only the market didn’t continue to rapidly rise. In fact, it fell 10%, or more, and even the gain you thought you locked in disappeared after factoring in real estate fees to sell the property.

Join the crowd. These kinds of condo owners have 3 choices: hold on, negotiate with the bank to sell the property for less than you owe (called a short sale), or walk away and let the bank foreclose. Holding on is making less and less sense for many owners, and that’s why we’ll see the number of foreclosures and short sales continuing to rise.

Is this an opportunity for condo buyers? Perhaps, but caution must still prevail, especially with these scenarios:

A blood bath in the condo community. When you see a large number of condos in one development for sale, or especially when there is a large number of short sales or foreclosures, red flags should wave. This kind of scenario can occur for several reasons, and some are more ominous than others. For example, 50% of units for sale in one Scottsdale Arizona loft community are in short sale or foreclosure status. There is nothing wrong with the development, except that prices ran up to far and fast when it was the only loft community in town. Now with some competition from other lower priced lofts in the area, these units are way overpriced. This situation could be a buying opportunity for the right price. Another high rise development in San Diego with a higher number of units for sale and in foreclosure has a higher than normal HOA and too many renters – problems that could take another few years to work out. Other developments in downtown Scottsdale may be a better choice.

Condos with location flaws. When real estate is good, even the condos with a bad location – over looking the dumpster or with a view of someone else’s wall – would sell. In a buyer’s market, the buyer has more to choose from and condos with a bad location will be the last choice. In many cases, it is better to pay a little more for a good location than a lot less for a bad location, especially in a buyer’s market.

A condo community where condo prices continue to fall. If every sale is a lower sale, when do you get in? It’s a tough call, but a shrewd investor will wait for prices to solidify somewhat in the resale market, and more significantly, in the particular condo community you are considering.

If you are considering a purchase in the condo foreclosure market, look at the big picture before assuming that foreclosures and short sales are the best bargain. Look at the entire resale market first and examine each possibility with resale in mind. Make sure you know what is currently on the market for the area and what it is listed for – recent solds are only half the story.

 

 

Information Deemed Reliable But Not Guaranteed. The Fair Housing Act prohibits discrimination in housing based on color, race, religion, national origin, sex, familial status, or disability.