With Foreclosures on the Rise, Don't Expect Discounted LA Properties

Buyers have been asking me "Hey, Glenn, what about foreclosures? Can we get a really good deal on a foreclosure?" Reading between the lines, it's obvious that the real question is "Can we get a $1 million home for $400,000?"

A few weeks ago, Black Knight announced that foreclosure starts around the nation had increased sevenfold from where they were in December 2021. Such a striking increase is bound to cause some disturbance in the real estate market. Additionally, media coverage blowing up the situation is bound to fuel the appetite of those looking to scavenge the bones of foreclosed properties.

Unfortunately, if you’re looking for cheap property in Los Angeles County, foreclosures are not the answer. In fact, they may even cost you more. Let me explain.

Buying a Listed Home vs. a Foreclosed Home

The first thing we need to understand is that not all foreclosures are created equal. In many cases, the homeowners simply can’t make their mortgage payments and they walk away from their homes. With all of the COVID-relief programs that have been in place for a while now coming to an end, we’re likely to see more of these types of foreclosures.

On the other hand, some homeowners may have taken advantage of the low-interest rates and refinanced their mortgages from a fixed rate to an adjustable rate. When they can no longer make their payments, they will go into foreclosure, and the bank will take possession of the property. This is known as an REO (Real Estate Owned).

The problem with trying to get a good deal on a foreclosure is that the banks want to get rid of them as quickly as possible while also recouping their losses. This means they’re often priced well above market value. Additionally, they’re often not in good condition because the previous homeowners may have neglected them.

The other issue is that there are often multiple offers on foreclosures. This drives up the price even further. And, if you’re not paying cash, you’ll need to get a loan, which can be difficult because banks are often reluctant to lend on these types of properties.

How Will This Affect Home Prices in Los Angeles?

Los Angeles doesn’t follow the same trends as the rest of the nation. We have a very tight housing market with very little inventory. So, while we may see an uptick in foreclosures, it’s not likely to have a significant impact on home prices.

If anything, it could actually drive prices up because there would be even fewer homes available for sale. And, as I mentioned before, don’t expect to get a foreclosure for a steal. The banks are well aware of the market conditions and they’re not going to let these properties go for a bargain. They’re going to do everything they can to ensure any benefit goes to them, not to you.

What's the Bottom Line?

So, what does this all mean for you? If you’re thinking of buying a home in Los Angeles, don’t count on foreclosures to give you a bargain. Prices are likely to stay high, and if anything, they may even go up.

The best way to get a deal is to find a motivated seller who’s willing to negotiate. Look for homes in your price range that have been on the market for a while. These sellers may be more willing to accept a lower offer.

You can also try to find a fixer-upper. These homes will often sell for below market value, and you can make upgrades to increase the value. Just be sure to factor in the cost of repairs when you’re making your offer.

The bottom line is that if you’re looking for a home in Los Angeles, don’t focus on foreclosures. They may not be the deal you’re hoping for. Look elsewhere and be prepared to pay market value.

If you’re not sure what you should do, talk to a real estate agent who really knows the LA real estate market. The Shelhamer Group is a real estate company in Los Angeles that specializes in helping people buy and sell homes. If you’re looking for help navigating the LA real estate market, contact us today. We would be happy to assist you.