Foreclosure Homes - Better Deals in Reno or Sparks?

Posted by Mitch Argon / CalNeva Realty on Friday, November 2nd, 2007 at 12:17am.

Foreclosures - True Savings?

At this time, there is no informed person who would dispute that we are NOT in a Buyer's market  when it comes to real estate in the greater Reno area.  At the same time, there is a lot of national media coverage on bank foreclosures as a result of the large numbers of home mortgages on variable interest rates that are adjusting upward.
As a result, most people shopping for a new home believe that the best bargains will be - you guessed it - bank owned properties or foreclosure homes.
I did a bit of research to distill this perception right down to the numerical facts for the Reno and Sparks real estate markets.

A few definitions:

Reduction % = The amount, as a percentage, that the price was reduced from the original listing price to the posted listing price at the time the property went into escrow.
Negotiated % = The amount, as a percentage, that the price was reduced from the listing price to the accepted price during the negotiations (between the Buyer and the financial institution or owner who owns the property)
Total Relief % = The amount, as a percentage, that the home seller accepted below the ORIGINAL listing price.

Example: A home is initially listed for $100,000.  After a time, the Seller lowers the price to $90,000; Reduction % = 10% ($10,000 / $100,000).  Later, the home sells for $80,000; Negotiated % = 11.1% ($10,000/ $90,000) and the Total Relief % = 20% ($20,000 / $100,000).

The time period for these home sales is from August 1, 2007 to October 31, 2007 - three months.  I used home sales in Reno and Sparks to ensure a large enough sample size of homes sold.  Other local markets (Carson City, Minden, Dayton, etc. )have too few foreclosure sales to illustrate meaningful minimum, maximum, and average numbers.

The Foreclosure Numbers:

  Reno Sparks
Qty Sold 16 13
Reduction %    
Minimum 0.0% -0.4%
Average 5.8% 5.9%
Maximum 14.3% 21.3%
Negotiated %    
Minimum 0.0% 0.0%
Average 5.0% 4.7%
Maximum 16.8% 15.0%
Total Relief %    
Minimum 0.8% 0.0%
Average 10.6% 10.3%
Maximum 21.0% 25.5%

 These homes were pulled from a list of homes in the MLS that all contained comments with the words "REO, R.E.O., bank owned, bank-owned, and foreclosure". There are more foreclosure properties on the market, however, the Northern Nevada regional MLS does not allow a way to directly search for bank owned properties by a designated field.

The "Overall Market" Numbers:

  Reno Sparks
Qty Sold 637 266
Reduction %    
Minimum -20.4% -2.0%
Average 3.9% 4.5%
Maximum 36.7% 40.0%
Negotiated %    
Minimum -26.3% -2.7%
Average 3.8% 3.9%
Maximum 26.3% 18.4%
Total Relief %    
Minimum -26.3% -2.3%
Average 7.6% 8.2%
Maximum 53.3% 45.8%

 Note: a negative number indicates that the home price was 'raised' - not lowered.  This could be done as a result of initial pricing that was not accurate, major improvements to the property after listing, or as a negotiated increase in price to support the seller paying for a portion of the buyer's closing costs.

Keep in mind that these numbers include the foreclosure numbers referenced above - in essence, all homes sold through the MLS.


I am going to focus on the "average" numbers because I think it is easier to see the comparisons.  The difference between the average % reductions in all categories between foreclosure homes and the overall market is between .8% and 3%. 

For "Total Relief %" (aka the bottom line), the difference for the Reno homes is 3% (10.6% for foreclosure homes less 7.6% for the overall market).  The difference for Sparks homes is 2.1% (10.3% for foreclosure homes less 8.2% for the overall market).  That is, on average buyers of bank owned properties are saving 2-3% over a buyer of a private seller.

If you apply these numbers to a home valued at $300,000, you are talking about a savings of roughly $6,000 to $9,000 on your home purchase if you were to buy a foreclosure home versus any home in the market.

Keep in mind that foreclosure homes do not always show terrific pride of ownership and may have more deferred maintenance than owner occupied homes.  When you factor all of this together, you may end up spending a good portion of your savings from a foreclosure purchase on painting, flooring, fixtures, landscaping, etc.

The Bottom Line:

If you are buying a home that you plan to live in, I suggest you FIRST focus in on the locations that best suit your needs and SECOND on all homes that meet your criteria(price range, size, rooms, etc.) in those specific areas.  By searching this way, you will then be able to negotiate (based on recent sales in that neighborhood) to a price that may be suitable for you.  If you go about chasing every foreclosure deal on the market, you may not find a suitable much less desirable home and not save much money in the process (after repairs, etc.).

If you are an investor (and there are not many of them in the market at the time of this writing), chase the foreclosures but beware of the hidden costs of foreclosure properties that have been neglected prior to foreclosure.

I hope this blog post sheds some light on this topic which is getting quite a lot of broad media coverage in today's market.

Mitch Argon
Broker - CalNeva Realty

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