Hunting Happiness

As the rates of foreclosures in many areas continue to increase, there is a dark side that is less often talked about.  Obviously families being evicted are affected, but there are effects beyond that.

Foreclosed properties often eventually sell at auction or via the traditional MLS but at seriously discounted rates.  In our part of the country, such a property is usually sold as-is (without any warranties) and for 25-50% off the normal per square foot price.  If you are trying to sell your home normally, potential buyers or their real estate agents will run “comps”, looking to see what the average selling price per square foot recently has been.  If there are one or more foreclosures or short sales, this can dramatically lower the per square foot price.  While it is not an apples to apples fair comparison, in a lousy market the buyer has more leverage.

Also, if a property is bank-owned it often falls into disrepair.  These eyesores can drag down the overall curb appeal of the neighborhood, which is especially critical in tough markets.  If it gets bad enough, vacant properties can bring vermin, both of the four-legged and the two-legged human kind.  Some communities and cities spend tax payer dollars to perform basic upkeep on unoccupied properties, and can put liens on the properties.  These liens have to be satisfied before the property can be bought.  The problem is the owner of the vacant property doesn’t feel any immediate pain, and the penalty ends up being close to what they would have paid to perform the upkeep themselves.  Essentially they are getting a free loan from the taxpayers.  But more and more cities and communities are looking to the legislature for assistance.  California’s senate recently passed a bill allowing cities to penalize vacant property owners (typically banks) up to $1,000 per day per property for failing to keep it up.  As a tax paying citizen, I completely agree with this.  As a real estate investor, I agree even more.  If banks have to pay to keep properties up, or face stiff penalties, they will be even more motivated to quickly unload properties at a discount.