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Lane Hornung says if you limit your house hunting to distressed properties, you're limiting your search to a third of the houses on the market.
Many prospective home buyers believe if they want to get the deal of a lifetime in this market they need to focus on distressed properties, such as foreclosures or short sales, in which the lender accepts less than the mortgage amount.
Not so fast, says Lane Hornung, co-founder and CEO of 8z Real Estate and COhomefinder.com. Hornung discusses below why ignoring market-rate homes – those sold by willing sellers to willing buyers – isn’t the wisest move.
InsideRealEstateNews: Lane, the home-selling market is entering the prime season. What is different about this season?
Hornung: It used to be simple. It used to be when you would think about the selection of properties you were looking for, it would be either resales or new construction. Now, you have to go up one level. There are a number of choices within the resale market – the owner-occupied, bread-and butter, market-rate homes, or, you can go down the distressed property path.
IREN: And there are a lot of choices if you go shopping for a distressed property, aren’t there?
Hornung: Yes, there are. But not all distressed properties are created equal. There are short sales, REOs (real estate owned or bank-owned foreclosures), and now we are seeing a lot of HUD properties. I’m seeing a huge increase in the volume of HUD contacts.
IREN: Lane, you say that not all distressed properties are created equal. Does that mean buyers need to have a different expectation for different distressed property types?
Hornung: Absolutely. If you are considering a short sale, the bank may respond to you very quickly, or it may respond very slowly. In some cases, it may not respond at all. We would counsel all buyers looking to buy a short sale regarding what a long process it can be. If you are in a hurry, you are probably going to be disappointed if you are set on buying a short sale.
IREN: Lane, there is a perception among many consumers that they will always get a steal when they buy a distressed property. Is that correct?
Hornung: I think there is a common misperception that distressed properties are always screaming deals. Part of it is because there is so much in the media about it. Even you talking to me right now on this topic helps fuel that perception. And sometimes it is true. Sometimes they truly are screaming deals.
IREN: But not always?
Hornung: Buyers of distressed properties often want to get X percentage below the list price. The flaw of that strategy is the assumption that the list price is a valid starting point. Sometimes it’s a great deal at 100 percent or 102 percent of the listing price. It is very common for someone relocating from a bubble market like Las Vegas to expect buy at 65 percent of the list price. Guess what? If they try that strategy in a market like Boulder, they are never going to buy anything.
IREN: Lane, does it make sense for buyers to limit their house-hunting to distressed properties?
Hornung: Let’s say that distressed properties account for roughly a third of the inventory right now. If you decide you only want to look at distressed properties, you are limiting yourself to a third of the market. And that’s crazy. That means you are ignoring two thirds of the market.
IREN: And because the owner-occupied homes on the market are competing against the distressed properties, that affects their property, correct?
Hornung: That’s right. What you should be saying is that I want a house that fits my budget, fulfills my lifestyle needs and is a good value. That way it doesn’t matter whether it is a so-called “distressed” home or a home sold by an individual owner.
IREN: Thanks, Lane.
Lane Hornung is the CEO and co-founder of 8z Real Estate and COhomefinder.com. 8z Real Estate is a sponsor of InsideRealEstateNews.com. A conversation with Lane on a real estate topic is a monthly feature of InsideRealEstateNews.
I see this all the time … since my company has a very strong web presence, we attract clients from all over the US and abroad. Many people think “foreclosure” means half price. It’s important to present ALL options to clients and not limit them to distressed properties only. Some sellers may be very motivated and can sell with far less complexity than a distressed property. My office and I have successfully helped countless clients buy and sell distressed properties, though sometimes a regular market sale can be better especially if time is a concern.
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