May 15, 2012

Portland Real Estate Foreclosure Myths

Since mass foreclosures started hitting the Portland real estate market around the time of the real estate downturn, many misconceptions about foreclosures have been floating around.  The myths and rumors were spread and many Portland real estate buyers tried to understand what was real. Many misconceptions have come and gone, we still encounter a few myths on a regular basis.

1. The flood of new foreclosures to the market.

This rumor has appeared just about every year since we have been talking about and has been routinely debunked. However, recent announcements that the Feds reached a settlement over the robo-signing scandal have reignited speculation. The idea is simple: Since the cork is now out of the foreclosure bottle, we’ll soon see another flood of REOs inundating the marketplace.

In reality, banks have learned that if they control inventory, they can affect local prices. By releasing homes in measured amounts, they realize higher prices than if they released a glut of homes. In addition, they’ve learned that if they can mitigate their losses by agreeing to a short sale, everyone wins.

2. Buy a foreclosure directly from the bank.

Everyone wants to know how to buy foreclosures direct from a bank. Someone always seems to know a friend being foreclosed on and they want to step in and grab the house before it hits the market. Who wouldn't want to be able to do that?  In the real world, banks have a simple system – they first offer properties on the courthouse steps. The rest they assign to asset mangers who then hire local real estate agents to put them on the market along with all the other homes. If you really want an REO? Pay cash at the courthouse steps.   If you can't do that, get in line witheveryone else when they hit the local MLS (Multiple Listing Service).

3. The best way to get a deal is low-balling foreclosures.

Just like Bigfoot/Sasquatch sightings, you would think this myth would be dead by now but, unfortunately, it just won’t go away.  Most because banks want REOs sold in 30 days or less, so they typically appear on the market priced slightly under comparable properties. If the property doesn’t sell quickly, the bank will lower the price after about 30 days to get it sold.  You might get a deal by offering a lower price on a foreclosure that’s been sitting on the market for more than 90 days, but remember that there are good reasons it’s gone unsold for so long.   Lowball offers are ignored and are, to put it bluntly, a waste of everyone’s time and effort. And even if you have cash, the probability of  your lowball offer being accepted is really low.

4. Appraisers don't use foreclosures.

In fact, in many neighborhoods, foreclosures (and short sales) are all that’s there.  Therefore, foreclosed or distressed sales represent the actual value of homes in the area and HAVE to be used to appraise other properties. Thanks to foreclosures and short sales, the way neighborhoods are valued have changed.

5. The bottom end of the market is all that is being affected by foreclosures.

While foreclosure rates on the lower end of the market have actually decreased, they’re actually increasing on the upper end. According to Daren Blomquist, vice president of RealtyTrac, the market share of foreclosed homes under $1 million is shrinking, but those among properties valued over $1 million are rising – up 115% since 2007. And foreclosures on properties valued upwards of $2 million have increased by 273%. While some of the higher end Portland real estate market owners have come close to losing everything, others are choosing to strategically default. They see it like liquidating a poorly performing portfolio – they have enough resources to cut their losses and move on. Historically, banks have been reticent to foreclose high-end homes and absorb a large loss, but defaulters are now forcing their hands and mansion foreclosure rates are moving on up.

To some extents, myths control behavior, and this has never been truer than in the Portland housing market. Good agents will work hard to debunk the myths that are out there, explain the current market trends, all while educating their clients on the market with solid facts.


Rich Peralta is a real estate professional in the Portland Metro Area, including Lake Oswego, Tualatin and  West Linn Real Estate.

He can be reached at 503.961.2181 or by e-mail at

Contact him  for more information on Portland,  Lake Oswego or West Linn Real Estate!

Originally posted on West Linn Real Estate.

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