According to the National Association of Realtors® Confidence Index Survey, the real estate market is currently divided along two segments. 1) Distressed property, selling at a significant discount in the neighborhood of 10 to 20% in recent months and 2) Non-distressed property, selling “at market.”
NAR research shows that in April ’09, 44 percent of sales were distressed property, down from 49 percent in March. In March ’09 distressed properties sold at a discount of 20 percent to market, declining in April ‘09 to a 9 percent discount relative to market. The narrowing of the discount is consistent with numerous reports of distressed property being subject to bidding competitions actually resulting in prices higher than the initial listing price.
Everyone knows that distressed property sells at a discount relative to non-distressed property. The problem being reported by Realtors® is that buyers assume that all properties are distressed properties even ones not in foreclosure or under short sale. Buyers think that they can get a discount of 20% or more from the list price, and tend to make offers of approximately 40 percent of the mortgage balance.
Buyers making these unrealistic offers may be affecting the current existing home sales market. While distressed properties that need work are indeed selling for a significant discount relative to the market, sellers who are not distressed are simply refraining from accepting, or perhaps, even countering lower than market offers.
