Columbus Ohio real estate

I often get asked, does Zillow account for Foreclosures when calculating a Zestimate?  Short answer: no. 

However the long answer is very interesting.  Recently Zillow released a white paper where we looked at the question of if Foreclosures constituted a distinctly separate market from non-Foreclosures.  This paper was born from this debate where some thought there were so many Foreclosures that they were the market; while other argued that Foreclosures have characteristics that caused them to sell lower than at market value. 

The white paper itself goes into a high level of detail about methodology and data points used, but I'll skip to the results here.  Our data found that the answer to this question is YES, they are distinct markets. 

Of course, real estate is local so the numbers vary across local metros, but the trends held relatively the same. 

• Nationally the average ratio of Foreclosure prices to market value is 72%.  This is against the assumption that non-Foreclosures sell at market value, or 100%. 
• It appears that more Foreclosures in an area do lead to a smaller gap between Foreclosures and non-Foreclosures.  However, there is rarely less than a 20% discount for Foreclosures.

Based on the data, it indeed did find that Foreclosures sell for substantially less than non-Foreclosures, meaning that you can't compare two like houses when one is in Foreclosure and the other is not.  Two conclusions were drawn at the end of the study.  

1) The difference in these two markets is the reason why we can't include Foreclosures in our Zestimate calculations. We also don't use them in factoring our Zillow Home Value Index (ZHVI), or the trend information you find on the Local Info tab of the site.  Interestingly, this is a key reason why our ZHVI is currently down 21% from its peak compared to Case-Shiller Home Price Index (which does include Foreclosures) which is down more than 30% from its peak.

2) These findings show that it is inappropriate to include Foreclosure sales data when appraising non-Foreclosure homes.  Adjusting for the condition of recent Foreclosures, as well as the Seller's motivation in the Foreclosure situation, sounds great in theory but is ultimately complex in practice.  Especially given the Appraiser has likely not been inside the homes being used as comparables for the subject home.

Download the full report  - Price Differences Between Foreclosures and non-Foreclosures

Video recap with Dr Stan Humphries, Zillow's Chief Economist

 

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On 06/19/09 1:52 PM, Melanie wrote:
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I notice that your profile says you have experience in foreclosures. I have a friend who is interested in purchasing a foreclosure property. How does one go about finding and purchasing these properties?

Feel free to message me on LinkedIn or send an email to me directly at ****** I also can be reached by phone at ********

Thank you!

Melanie,
While there are certainly no lack of websites offering foreclosure lists, it's important to realize that these all require a fee & quite often they are made up of mostly very outdated information. There are, however, other options to learn about potential properties in a timely manner.

Any GOOD Realtor will search the areas & price point that your friend is interested in & in the body of the listings They'll recognize key indicators that identify which ones are foreclosures & which are short sales, etc. Key phrases like "Bank Owned" (obviously) "subject to lender approval" (not as obvious), "as is" (certainly not obvious) and a few others. Quite often these descriptors will not show up in the public access sites - but a Realtor can help.

Also, remember all foreclosures do not always equate to a "good deal." Quite often lenders have an unrealistic view of what the house is worth. In our region it's actually more common to see a listing overpriced than it is to see one discounted.

If a really good deal is the the end game, it's critical that your friend is assisted by a good Realtor who can examine the whole inventory within their price point for the best deal regardless of ownership status.
And most importantly, this repesentation doesn't cost the buyer a thing...

If I can be of further assistance please don't hesitate to contact me
Thank You
Guy Adams

 

  As Short Sales become more prevalent...sometimes the understanding of buying one does not....there is still a great deal of misunderstanding.  Both Buyers and Agents believe...or want to believe that a Short Sale means -

        -  The Bank will take any nickel on the dollar the buyer chooses to write

        -   All short sales are vacant properties that have been trashed

         - The bank always pre-approves a short sale

         - The bank will "eat" the buyers' Closing costs, testing and repair allowance

         - The sale will take at least 6 months to close

 

                        These are just a few of the myths and the short response to the increasing longer list of misconceptions is NO....not true.  If you are a buyer, talk to an experienced agent in short sales and learn the truth about short sale prices.  If you are an agent....learn the Real Short Sale Story BEFORE you ever take your buyer to a short sale....you will be saving your time, the trees that would have been sacrified writing short prices....and the frustration of the seller and the sellers' agent.

          Short only applies to the reasonable short which is dependent upon specific market conditions and prices that a bank accepts for the indebtedness of the seller. It is not the number picked from the air, the one you can afford, the one you want to pay....That's the long and short of it...Know what you don't know and refer, defer to someone who knows short sales.

As an expert on short sales in Washington, I have helped counsel many buyers and sellers through the process and have had many common asked questions about how it works. If you have further questions, please feel free to add them and I would be happy to answer.

Q: What is a short sale?

A. With real estate prices currently at the 2005 level, many homeowners find themselves needing to sell and owe more than they can sell for. If they have the money to pay the bank for the loss, they will not be considered for a short sale with debt forgiveness. Many sellers can no longer make their payments due to loss their job, recent divorce, failure of business or were a victim of the sub-prime market and need to sell. There is a possibility these distressed homeowners may qualify for debt forgiveness, but need to prove they do not have the money or will not have the money in the future to pay back the debt. The home is listed without any conversation with the lender and a short sale packed including the seller’s financials and hardship letter is prepared. Upon receipt of an offer, the seller signs off on terms, although most terms are not official without lender’s approval. The status becomes “Pending BU Requested” as the lender requires the listing agent to submit all offers until approval. The packet is submitted and is in line for the lender to review. This timeframe roughly takes between one and three months to get a response. The bank orders a BPO, which values the home and is assigned a negotiator to work with the investors and buyer to come to terms. Once the lender approves a price, they send an approval letter with an end date to close by. With Form 22SS, the timeframe for the inspection and financing contingencies begin upon lender approval although can be done prior.

Q: When does the bank become involved?

A: The bank does not talk to the seller or listing agent until there is an offer in hand. The listing price may be far less than the bank is willing to receive initially which commonly confuses the buyer. Once they have an offer, the BPO is done which in turn values the property for the bank. The BPO is current market value done by a local agent. Many times the first buyer walks away as they are not interested in paying the BPO amount. The longer the home sits on the market and the closer the foreclosure date, the lower the price the bank will accept. It is the BUYER'S agent's job to research the seller's financial situation to determine the likelihood of the bank accepting their desired price. I always sit my clients down and explain each scenario and set their expectations correctly so there is no last minute confusion. It is important to understand that the lender will always negotiate, so it is imperative to start your offer below what your walk away price is, similar to any negotiation. Currently, lenders are starting to realize they will make more money on a short sale than if they move forward to foreclosure. Banks have so many foreclosures on their books that they are more inclined to work with interested buyers before they foreclose.

Q: Do most short sale require the buyer to skip an inspection?

A: It is highly recommended to get an inspection on any home, especially a short sale as many times homeowners in distressed situations do not care for the home as they should. The inspection can be done upon mutual acceptance with the seller to avoid waiting up to three months for lender approval OR can be done upon lender's approval after waiting to avoid paying the $400-$500 inspection cost. The issue is when you find items that need repair. If the seller is in a distressed situation where they need debt forgiveness, the seller is not in a position to make repairs. It is possible to renegotiate with the bank, although sometimes they will not re-negotiate. Either way, the inspection is mainly for the buyer's information to know what condition the home is they are buying and what items will need to be addressed in the future.

Q: I did some Googling and read that only 10% of the short sales come to sale and the rest become bank owned. So sounds like a very depressing success ratio.

A: The statistics you read may look depressing, but want to remind you the buyer is unique for a short sale transaction... they are looking into other options while waiting on the lender response, and also looking for an extremely aggressive price. The amount of offers submitted and sales that occur are skewed because many buyers walk away if they find a home they like better, or if they do not get the price they want. I have sold many short sales as they are the majority of the market and have had a much higher success rate.