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Are Foreclosures Still a Steal?


Dec 28, 2020 by Aly J. Yale
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Foreclosure moratoria have made distressed properties in short supply these days. For investors interested in these homes, it's having some unsettling effects. Not only are foreclosure properties harder to come by these days, but they also come with heavy competition and ever-rising prices. And in some states, foreclosures barely offer a discount when compared to their actual market value.

Are you looking to invest in foreclosures? Here's what you'll want to know before diving in.

You won't get the deals you used to

According to the Q4 2020 Distressed Market Outlook report from Auction.com, foreclosures aren't offering the deals they once were. In fact, when comparing the average foreclosure sale price to the property's actual market value, foreclosures are at their most expensive level since January 2014.

In the fourth quarter of this year, the average foreclosure sold for 86.4% of its market value. In some states, it was even higher. In Georgia, for example, foreclosure sales clocked in at 99.6% of their market value. North Carolina, Tennessee, Arizona, and Virginia also had higher-than-average prices, too -- all in the 90% range.

In addition to these homes selling for a higher percentage of their market value, their average price per square foot has gone up, too. In July, pricing was up to $87 per square foot -- an all-time high for the metric. Previously, the average price per square foot had hovered from $50 to $75 for all of 2018 and 2019.

Expect heavy competition

It's no secret there's a nationwide shortage of for-sale listings. So naturally, foreclosure properties -- and any property that hits the market, for that matter -- are in high demand.

Unfortunately, for investors, that means increased competition, particularly on properties available via online auction. According to Auction.com's data, homes available online saw an average of 12 bids in September -- up from just 8.3 the year prior. In New Mexico, properties saw a jaw-dropping 19 bids per property, while California, Maryland, and New Jersey all saw around 16.

With recent extensions of the FHA and FHFA foreclosure moratoriums, distressed properties will likely remain in short supply for the near term. So this stiff competition? That's probably here to stay as well.

The bottom line

Foreclosures are hard to come by these days, so when you do find one, you probably won't get the deal you once would have. Fortunately, distressed properties aren't your only option if you're looking to invest this year. Here are five alternatives you might consider until foreclosure moratoria are lifted.

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