Sacramento Real Estate Blog

I took a few minutes today to look at the discounts for short sales and foreclosures based simply on list prices.  In other words — how much are they discounted before you negotiate with the seller? 

Foreclosures may have a little more negotiating room between list price and sale price, but not as much as you may think.  The reason is that homes that are priced well to begin with tend to get more competition, so even in the case of bank owned foreclosures, buyers typically only negotiate something between 5-6% off the list price for foreclosures, as compared to about 4% for all sales.

The real bulk of the discounts for foreclosures and short sales already appears in the MLS.

So with that, let’s look at the results.  How much are foreclosures and short sales discounted in Sacramento County?

In active inventory, the list price for non-distressed sales are currently averaging $228.62 per square foot.  Short sales are discounted, on average, 27.8%, with the average list price for short sales being $165.00 per square foot.  Foreclosures are discounted even more — 36% compared to non-distressed sales — with the average REO in Sacramento County currently listed at $146.19 per square foot.

One caveat, however.  If you look at short sales and foreclosures on a neighborhood by neighborhood basis, you generally see foreclosures still having better discounts than short sales — but the overall magnitude of the discounts are somewhat less than they are when you look at the entire county.  This is because part of the 27.8% and 36% numbers reported above reflects the fact that in many cases more expensive areas also have fewer foreclosures. 

In Antelope, for example, Short Sales are currently listed at a discount of 26.3%, and foreclosures are currently discounted 30%, from their non-distressed counterparts.

“Only” 30% off?  That’s still not bad!

Purva recently wrote some excellent advice for home sellers in Natomas, and nearby Antelope home sellers.  Based on October’s real estate statistics, I would suggest that nearby Antelope sellers also need to seriously consider how competitive their home is compared to the many foreclosures that are on the market.

In October, bank owned foreclosures (also called REOs for “real estate owned”) accounted for fully 47.5% of sales in Antelope (95843).   In October of 2006, none of the forty-six homes that sold were REOs.  In October of 2007, forty units sold and nineteen of them were REOs (hence 47.5%).  As in other areas, foreclosures outsold non-foreclosed properties by almost two to one.  Even though they accounted for just under half of sales, REOs constitute just over one quarter (25.7%) of the inventory.

Moreover, Antelope is no exception to the general rule we’ve that the more foreclosures there are in an area, the more prices tend to plummet.  The median sale price in Antelope dropped 20.6% in October from the previous year, from $350,750 last year to $278,350 this year.  The average sale price dropped 23.6% during this time, from $360,437 last October to $275,350 this October.  Average sold price per square foot dropped off somewhat less, since this year’s average home was somewhat smaller.   The decline in price per square foot was 18.8%, from $206.44 last year to $167.69 last year.

Currently Antelope has 12.03 months of inventory.

But Aren’t Foreclosed Properties Sold “As-Is?”  Why Are They So Popular?

That one’s easy.  Looking at what’s currently on the market in Antelope, here’s how the sold prices per square feet break down:

REO’s are listed on average for $163.19 per square foot.

Non-REOs are listed on average for $183.49 per square foot.

On a 1650 square foot home (which is about average), the difference in price works out, rounding off a bit, to $269,000 versus $303,000.  $34,000.  Ten per cent.

Buyers aren’t stupid.  $34,000 buys a lot of paint and carpet.

I just finished running the numbers for Antelope, and found a few things as expected, and a few surprises.

First of all, here’s the author’s bias: I love Antelope. I think that dollar for dollar it’s one of the nicest areas in Sacramento County, and if I were looking for a home in Sacramento County on a budget, that’s probably one of the first places I’d look.

So I was a bit surprised to find a somewhat high value for inventory in Antelope (11.71 months). Also curious was that there were so many foreclosures (REOs represent 19.6% of the current available inventory, which is higher than the county as a whole, which runs around 12.5%).

Otherwise the numbers are fairly normal. The average sold price dropped 6.3% from July to July, from $356,017 last year to $333,714 this year. This year’s crop of homes, however, is some 19.5% bigger than last year’s however, so the actual sold price per square foot dropped a huge 21.5%.

Of course, when you compare this year’s average 1852 square foot home with last year’s average 1550 square foot home, even if all the sales took place in the same time period you would expect the 1852 square foot home to sell for less per square foot (given that the fixed value of the land is spread over a bigger house). So when you take this into account, it’s possible to adjust the sold price per square foot yet again, and we come up with a more realistic drop of 12.1% from year to year.

Days on market increased 53.7% during this period, from 41 days on average last July to 63 days this July. The expired to sold ratio was about 97% last year, and about 97% this year as well. Unit volume has fallen 20%, from 45 last year to 36 this year.