The state of Florida seems, on the surface at least, to be experiencing a real estate meltdown. Rampant real estate speculation, development and the sub-prime mortgage debacle are being blamed for the glut of homes for sale that has left the market upside down and many homeowners under water and facing the prospect of foreclosure. With many Adjustable Rate Mortgages (ARM) due to reset at higher rates the fallout may not be over. Further manifesting the situation is the insurance premium increases coming down the pipe to cover the devastation and property loss/claims associated with the last several hurricane seasons.
Compounding the problem is the expected increases in condo fees to cover property losses not covered by insurers. The fallout has created a unique opportunity to re-visit real estate opportunities right across the state. There are a couple of by-products to this type of market. One is a rise in For Sale by Owner properties. Homeowners are looking for any edge they can get when they are looking to get out from under a high equity mortgage or negative equity mortgages. A For Sale by Owner allows the homeowner more options when it comes to pricing. They can expedite the sale of the property by passing on the real estate commission savings associated with a For Sale by Owner. This can represent a substantial savings to the buyer and certainly make your property more attractive when you consider the real estate commission savings on a $280,000 property is $16,000! The For Sale by Owner also has more latitude when it comes to making their home “appear” to be more attractive.
They can offer creative seller concessions like “no condo fees for a year” or “0% financing for 3 years”. Essentially instead of passing the savings directly to the buyer they create a “package” that may seem more appealing. I have personally seen everything from “Free Plasma TV’s” to “Timeshares in Puerto Rico”. Creativity can certainly perk someone’s interest, but I tend to prefer a straight “cash” discount or rebate. This allows the prospective homebuyer the opportunity to decide how they want to best use the monies. Cash has a set face-value; $2000 always carries a “value” of $2000 regardless of the buyer, whereas a “timeshare in Puerto Rico” will have different values to different people.
The 2nd by-product, unfortunately, is “Foreclosures” – which have been rapidly increasing in Florida since 2006. Industry experts blame this increase on “sub-prime mortgages”. Sub-prime mortgages are higher risk because they are made to borrowers that typically do not qualify under traditional more rigorous criteria because of limited or poor credit history. Sub-prime mortgage loans have a significantly higher failure rate then prime mortgages. Sub-prime mortgages typically have a higher debt service-to-income ratio and the homeowner simply can’t make ends meet. The end result is more foreclosures and an increase in houses for sale – the fact that they are “distressed” and vacant further erodes the overall values of all homes. As the inventory of unsold properties continues to grow, residential real estate prices decline.
The bottom-line is there is an abnormally high number of existing homes currently listed for sale in Florida. As supply outpaces demand, property values drop. For Sale by Owner may allow the homeowner to bridge that drop in value and allow them to avoid foreclosure.