Winchester Distressed Properties Are No Longer Distressing
The good news for the Winchester-Frederick County, VA real estate market just keeps rolling in. It’s safe to say that Winchester distressed properties are no longer distressing most home-owners. What is a distressed property? A distressed property can be a short sale or a foreclosure (or REO, real estate owned).
A short sale is a property the lender gives the home-owner permission to sell below the current loan balance. Many homeowners who bought in the pre-recession years, bought their homes at a premium price. For instance, a home that sold for $400,000 in 2006 lost value during the recession, and owners who carried those mortgages found themselves in trouble in 2008 and beyond.
Winchester distressed properties: What are they?
The Winchester real estate market lost an average of 33% in the fall of 2008, and soon after, Winchester distressed properties shot up. That $400,000 home was now worth $280,000 – $300,000. That left the home-owner with a debt of up to $100,000 beyond his home’s value which was no longer backed by his real estate. That scenario is where the often used real estate term, “under-water” originated. In that case, the owner was drowning in his mortgage debt because he owned more than the home was worth.
Distressed properties came in waves. The first wave of distressed properties came by way of foreclosure. Many families who were dependent on two incomes were reduced to one income as the economy and the real estate values contracted. They were followed by investors who over-extended themselves, and finally, those owners who were hanging on by their fingernails lost their battle in 2009 through 2013. That opened the door to a wave of short sales.
All Winchester-Frederick County distressed properties have declined over the past three years, but the most recent news is the best. Of the current pending sales (homes under contract), only 8.7% are distressed properties. This is a place where an interesting phenomena has taken place. Up until this year, foreclosures have always been the primary source of distressed properties, but in June of 2017, short sales are leading that group of Winchester distressed properties at 6.2% of that total. Foreclosures make up the rest at 2.5%. That number is likely to return to higher foreclosures as short sales continue to fall, but both categories are on the decline.
Winchester distressed properties: By the numbers
There are 289 pending sales in the Winchester-Frederick County, VA real estate market. Of those, there are 15 short sales and 7 foreclosures. If you know how the numbers unfold, you can decide whether this is a time to panic or is it the natural progression of a market on the move.
Of the 15 short sales that are pending, 77% (13) were homes purchased before 2008. Because of the inflated home values before the recession, those properties would be prime candidates for an under-water mortgage. The highest number of short sales also corresponds to highest home sale prices immediately before the recession (2007). The remaining 13% of Winchester distressed properties (2) were purchased after the recession began.
The reason there so many short sales pending in June 2017 is because of the way short sales progress. Before a home-owner can qualify to do a short sale, she must communicate with her bank that she can no longer afford her home and she needs to do something. The home-owner has a few options. None are very good, but she can allow the home to be foreclosed, or offer a deed in lieu of foreclosure or she can begin a short sale.
Winchester distressed properties: How short sales work
A short sale is only possible if the bank agrees to allow the home-owner to sell the property below the loan balance. When the bank agrees, the home is listed and buyers can make offers. Once a buyer makes an offer, the seller can accept the offer, but that does not mean that the property will ever go to closing. The bank also has to agree to the offer. This is where the third part approval is needed a second time in the sale. It’s also traditional real estate sale practices and timelines disappear.
A bank may take 3 months to 6 months to 18 months to accept the buyer’s offer. Even though the seller has already said, “Yes,” to the buyer’s offer, the bank has to sign off on it. Of the pending short sales, 6 of those properties were listed in 2016. Only 9 were listed this year (2017). Some of those short sales have been under contract for months waiting for “third-party approval.”
The bank will hire local real estate agents to assess the property to make sure the list price is a fair price, and they will compare the buyer offer to that assessment. If there is a large gap, they bank will likely turn it down, and that can come after 90 days, or more, of waiting. A short sale is not a good property for someone who has to move quickly. Once the bank has accepted the buyer’s offer, then the process of a traditional sale begins. Home inspections are scheduled, earnest money deposits are deposited, title searches are conducted and the process begins to move toward closing.
There are 15 short sales pending in June 2017, but they are more likely a sign that the market is doing a little housekeeping after the recession. If the balance of the homes under short sale contracts had been purchased in 2013 and beyond, I would be concerned. Since they are pre-recession purchases, they’re showing that real estate prices were over-inflated, buyers were over extended and the market was in deep need of a correction.
Another reason not to panic over the June 2017 numbers is that there are 535 active listings on the Winchester-Frederick County, VA real estate market. Of that number, only 3.8% are distressed properties. That’s a negligible number compared to where the market has been in the past decade. Only .01% of those distressed properties are short sales. The Winchester distressed properties are no longer distressing home-owners, and that’s good news for everyone in the Winchester-Frederick County, VA real estate market.