Distressed Properties Selling at a Discount in Novato

Distressed properties make up about 37% percent of available homes on the market right now in Novato.  They range from a small $75,000 condo on Center Road up to a $1,250,000 mini-mansion in Hamilton’s priciest neighborhood.

The perception among buyers is that distressed properties are better deals than so-called regular sales. When you look at the data here in Novato, it turns out many distressed properties do sell for a discount -- in some cases up to a 14% discount, which can represent tens of thousands of dollars.

What is a distressed property?

Distressed properties refer to homes that are in various stages of foreclosure. They include short sales, where the selling price is less than what the homeowners owe, and bank-owned sales, where the property has been lost to the bank after months of missed mortgage payments. Foreclosed homes are known as REO (real-estate owned) or bank-owned.

Foreclosures

In the first three months of 2011, bank-owned homes in Novato cost 12% less than “regular” or non-distressed home sales.  The average sale price of foreclosed homes was $436,128 compared to $493,137 for regular sales, according to our local MLS, BAREIS.

While bank-owned homes in Novato no doubt weigh on market prices, our situation is enviable to many cities.  New RealtyTrac data show that nationwide, the average foreclosure sold for about 35% less than regular sales in the first quarter of the year.

Here in Novato, the discount was larger for single-family homes versus condos. The average sale price of foreclosed single-family homes was $504,259 compared to $585,833 for regular properties, a 14% difference.

Buyers could pick up distressed condos for 7% less than non-distressed condos, on average.

Short sales

In the first three months of 2011, the average short sale in Novato cost almost the same as the average regular sale: $493,545 compared to $493,137.

When you break sales down by property type, you see some differences.  For single-family homes, the average short sale closed for $604,750. That’s higher than the average for regular sales, which was $585,833.

However, when you look instead at price per square foot, short sales were about $239/sq ft and regular sales were about $272/sq ft, a 12% difference.

Buyers of short sale condos reaped a 5% discount compared to buyers of non-distressed condos.

Why the discount?

Distressed properties may sell for less, on average, because they may be priced less to begin with. Sometimes banks price low to try to encourage overbidding in hopes of driving up the price. Often sellers in a short sale price low to get a quick offer because they are in default on their loan and trying to beat the foreclosure clock.

There’s also property condition. Some foreclosures are in disrepair, have been neglected and do not show well. They may not be "move-in ready" and that can exclude buyers who don't have the cash to make big improvements.

Sellers executing short sales are often in financial trouble and many do not fix up their homes before putting them on the market. Deferred maintenance is common.

On the flip side, many regular sales benefit from home staging and other types property preparation that improve the look and condition of the home and result in higher sale prices.

Is it worth it?

For buyers, the bottom line is they usually get a discount on distressed properties, but they have to earn it.  To purchase a short sale, there are a lot of hoops to jump through, the biggest of which is time. It can take months of waiting and uncertainty before the bank responds to your offer.

In the first quarter of 2011, the average Novato short sale was on the market 222 days. Regular sales took less than half that time.