FORECLOSURE DISCOUNTS IN ILLINOIS INDICATE BIGGER MARKET ISSUE

The report looked at factors that may influence whether a foreclosed home sells at a discount, such as what stage the foreclosure was at when it sold, how much equity the sellers had in the house, the year it was built and if the sellers were still living there.

Houses with different combinations of these factors (combining those four factors made 24 profiles to analyze) sold at the deepest discounts in different states. In Illinois, properties which were vacant, older and in which the seller was no longer living at the property sold at the biggest discounts, according to RealtyTrac Vice President Daren Blomquist. This property profile had the biggest discount nationwide too, according to the report.

Offering the biggest property discounts behind Illinois’ 56 percent were Missouri at 49.6 percent, Oklahoma at 40.2 percent, New York at 38.5 percent and Wisconsin at 37.3 percent. Rhode Island and Kansas had some of the smallest discounts available, with foreclosed homes there selling for about 6 percent less than the normal market price. Foreclosed homes in North Dakota actually sold at a premium. The lowest-priced foreclosed homes there were still selling at 14 percent above the market price. Illinois’ Midwestern neighbors had varying discounts. Missouri and Wisconsin had some of the biggest discounts in the country, while Minnesota, Iowa and Indiana’s biggest discounts were between approximately 22 and 30 percent.

Even though Illinois had the highest foreclosure discounts available, the state only had the seventh-highest number of properties with the top five biggest discount-getting types of properties (out of the 24 property types researched). California, Ohio, Florida, Pennsylvania and Georgia all had more individual properties with profiles expected to grab the biggest discounts. Homes in California tended to be newer than the discounted homes in Illinois, Blomquist said. Those older homes have had more opportunity to fall into disrepair, translating to bigger discounts.

The fact that the discounts on these homes when resold after foreclosure are so high says a lot about Illinois’ housing market and inventory in general, Blomquist said. Properties in Illinois may be generally more “distressed,” plus another RealtyTrac report from July showed that Illinois had the third-highest number of foreclosures in the country in June. Blomquist said such big discounts indicate a market that is “out of balance and not healthy.”

That’s because, even though discounted foreclosed homes might be good news for individual buyers looking to buy cheaper houses, it can throw the prices of traditional-sale houses out of whack as they try to compete with the ultra-cheap ones.

“The bigger the discount, the bigger the drag on overall home prices from a macro marketperspective,” Blomquist said.

Blomquist also said such discounts might show that in Illinois, “properties that are in trouble are in a lot of trouble”– they may be older, less well-kept and more likely to be vacant than homes in foreclosure in other states. That means there is possibly a bigger disparity between distressed and not distressed homes and a bigger disparity between good and bad neighborhoods in Illinois than in other states.

While it might be bad news for the market overall, individual Illinoisans can take advantage of buying foreclosed houses cheaply. Blomquist said interested buyers can look at websites, such as RealtyTrac,that list foreclosed homes, speak to a realtor who knows about foreclosed homes or even walk or drive around to see what homes are in foreclosure in their area. Most homes in foreclosure (that are not yet owned by the bank) don’t appear on traditional listing sites.

According to Blomquist, these are mostly buyer-motivated sales. The buyer (generally through a real estate) agent approaches the seller, instead of the other way around. The buyer is offering a last-ditch solution to the seller (so that their house isn’t possessed by the bank) and in return the buyer gets a discounted price on the house. But, Blomquist advised, buyers should be aware that this is a sensitive situation for the sellers. They usually don’t want to leave their homes and are being forced out by circumstance and may be emotional about the transaction. Plus, such properties are usually in physical disrepair and have a greater need for renovations than most traditional-sale homes.

Blomquist also said the report found that properties where the foreclosure process had already finished and the bank was in control of the house function more like traditional sales. The houses may be listed, and they may even be more expensive than market value, because such sales offer some benefits.

“There is no emotionally distressed homeowner to deal with, so it is a bit of a cleaner transaction,” he said.

But as long as discounted foreclosures remain so high in Illinois, it might be hard for the state’s housing market to balance itself out.

“At the end of the day, it’s not good for the market to have such a deep discount,” Blomquist said.

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