Email This Post Email This Post Print This Post Print This Post
Home » Business, News, Real Estate

A commendable way to handle foreclosures

By: 14 February 2011 One Comment

By now, we’ve all read about how foreclosures have dragged down property values across the nation.

The math involved is pretty simple – if a bunch of properties are foreclosed and dumped on the market in a given area, then the lower prices those properties bring will lower comparable sales figures. As a result, the market value of homes in that area – and the community, in some cases – will also decline.

Here in Arkansas, we’ve seen some property values drop for a number of reasons. There is, of course, the time-tested dynamics of supply and demand. There are very high inventory levels in some parts of the Natural State and that is a result of more homes for sale than buyers. As supplies increase and demand either falls or remains level, prices fall, too.

We’ve also got foreclosures to consider. According to RealtyTrac.com, 2010 was a record year for foreclosures and, here in Arkansas, 1 in every 658 homes received a foreclosure notice in December. While what RealtyTrac defines as a foreclosure notice includes everything from default letter to a bank taking a home back and selling it, that’s still a large number.

It would seem, then, that home values would fall as a result of the high number of foreclosures in Arkansas. That’s not always the case. Let’s take a look, for example, at Lonoke County where the average sales price of a home last year was $140,483 – up 2.1 percent from $137,534 in 2009. Of course, we’re comparing sales prices to a year that wasn’t that great, but here’s a statistic to consider – on average, sellers in Lonoke County realized 97.5 percent of their list prices at closing.

In other words, a home that listed for $100,000 sold for $97,500 on average in Lonoke County last year. That’s an impressive statistic when one considers there are plenty of stories from around the nation about sellers taking a beating when they sell their homes at far below what they want for them.

A couple of years ago, bankers in Lonoke County mentioned a trend they’d seen develop. Quite often, a home isn’t in the best shape after it’s been taken back by the lender, so some banks started investing a bit in a lot of those properties so that buyers could have a “move-in” ready home rather than something they’d have to repair to make habitable.

Those investments resulted in foreclosed homes that sold for more money when put on the market, thus helping stabilize home values. Are the investments in foreclosed homes solely responsible for improving home values and impressive sales-to-list price ratios? Certainly not, but a lot of bankers in Lonoke are of the opinion that fixing up homes before putting them on the foreclosure market certainly helped keep prices from dropping overly much.

It’s worth mentioning those sales-to-list price ratios have held up well throughout the state in that most sellers are realizing around 95 to 96 percent of what they’d like to sell their homes for at closing. Meanwhile, there’s been a bit of a trend in some ares for banks to – you guessed it – invest in foreclosure properties in hopes of boosting their values on the market. There are even some companies out there who specialize in restoring homes that have been taken through foreclosure and are back in the market.

While we’ve not seen this “fix it up” practice in all parts of the state, it’s worth keeping an eye on simply because it is one of many innovative ways institutions are employing to keep home values from slipping too much in markets around Arkansas.

Column written by Ethan C. Nobles and distributed to Arkansas publications on behalf of the Mortgage Bankers Association of Arkansas.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.

Leave your response!

Add your comment below, or trackback from your own site. You can also subscribe to these comments via RSS.

Be nice. Keep it clean. Stay on topic. No spam.

You can use these tags:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This is a Gravatar-enabled weblog. To get your own globally-recognized-avatar, please register at Gravatar.