Information from the REALTORS® Confidence Index sheds light on the negative impact of distressed sales on price. Foreclosures have tended to sell for 20 percent below market, and short sales have had discounts in the 15 percent range. Distressed properties will probably continue to work their way through the real estate markets for the next two to three years, so rapid price recovery does not seem likely. However, the good news is that the overall percent of market for distressed real estate appears to have leveled off at the sales level.
What does this mean for REALTORS®? Comments by REALTORS® to the RCI survey indicate that potential buyers frequently offer unrealistic bids and engage in fruitless bidding processes with sellers whose properties are not distressed and in good condition. Potential buyers need to understand that while housing prices are down, non-distressed properties are generally not in “fire-sale” mode.
Property condition also impacts the price of distressed real estate. If a distressed property can be maintained as average or better, the price discount to market will be significantly less than would be the case for properties considered in the bottom 1 percent. REALTORS® can call this to the attention of banks or short-sellers: keeping a distressed property in good shape will bring a better price.