A week does not go by where I don’t have a homebuyer contact me from Zillow or RealtyTrac about “preforeclosure listings” which is a home that’s in the foreclosure process. And these sites that boast preforeclosure listings are doing a huge disservice because buyers are confusing what is available inventory and what is not.
In fact, the entire process of homebuying involving a foreclosure gets confused, too. I think these sites do try to define terms correctly, but for whatever reason, the message is getting missed.
The problem is that listings do not start with Zillow, RealtyTrac, or even Realtor.com! The source of all listing data begins with the local MLS. If the MLS does not have the listing, then the property is not for sale. Not even a bank-owned home because banks also list homes through MLSs. But buyers don’t always understand that, and so they waste a lot of time thinking about properties that are not on the market.
Recently, I had a buyer actually ask me when we could go by and see the inside of a preforeclosure property that he found on Zillow; the property was allegedly supposed to be sold on the auction block within a few weeks. I politely told him we could not view the inside because the house was not for sale, and whether or not Zillow had it noted as a preforeclosure, the owner would not be remotely happy if we walked up on his front stoop to ask if we could see the house — his home! — before he lost it.
Furthermore, over the years, I have seen homes in the preforeclosure process that never get foreclosed on. Many times the mortgage gets paid up-to-date, or at least within the two most recent payments due, and the property emerges from the foreclosure process. I have seen this happen eight to 10 times over a period of two to three years on a single property that was legitimately on the Zillow and RealtyTrac list of preforeclosure homes but was never actually foreclosed on!
This wastes a buyer’s time and can waste your time, too. The percentage of homes that actually make it out the door as foreclosure listings months to years later to the open market as a bank REO is quite low. In one of our larger counties in Georgia, for example, right now I find:
- There are 4,153 active listings for sale.
- Of those homes, 76 are active foreclosure listings. That is, 1.8 percent of all active and available listings are bank-owned in a county that five years ago was more than 35 percent bank-owned homes in the resale market!
- There are 697 new construction homes within this group — or a 9-to-1 ratio of new homes to available foreclosures that are being marketed for sale!
Under “foreclosures” on properties not on the market for sale:
- There are 352 homes that, according to Zillow, “are owned by a bank or a lender who took ownership through foreclosure proceedings. They may soon be listed for sale.” These properties are not found on any MLS.
- There are 3,200 “preforeclosures,” yet Zillow notes, “the lender initiated foreclosure proceedings on these properties because the owner(s) were in default in their loan obligations.” Preforeclosures are also not found on any MLS.
Clients who need to find a house should focus only on what’s available for sale today. It’s telling that Zillow lists more than 3,500 homes that it labels as foreclosures or preforeclosures, yet there are only 76 foreclosures actually being marketed for sale. This is typical in our market, and it’s what we see from month to month. Out of 428 total foreclosures, only 17.7 percent of these bank-owned homes in inventory are on the market as MLS listings and available for purchase!
When buyers spend time researching and thinking about homes they can’t actually buy, it costs them because they miss out on what they could acquire! We don’t see nearly the volume of foreclosed homes today that we did a few years back, and the banks do not have the ability to flood the market with foreclosures.
To further my point, even if all of the foreclosures that are currently bank-owned homes all hit the MLS today in this Georgia county, foreclosures would still comprise less than 10 percent of total inventory in the market, compared with peaks as high as 30-40 percent a few years ago.
Out of the thousands of preforeclosure listings seen online, a relatively small number of these will actually be eventually listed in the MLS and available for purchase. Don’t let your clients miss the opportunities in the homes that are available to purchase by focusing on homes that, as of yet, are not even controlled or owned by a bank.
Hank Bailey is an associate broker with Re/Max Legends and a Realtor for more than a decade who provides buyer’s agent representation and seller listing services related to residential real estate.