Watch Values Carefully: Foreclosure Flipping Inflates Prices

Foreclosure Flipping

When checking the values of foreclosed properties in a neighborhood, watch for flippers as they sometimes will artificially inflate the actual home prices.

Ada Focer is a Boston-based journalist writes a fantastic article on how speculators, flippers, fraudsters and the uneducated buyers all come together in a labyrnith that causes skyrocketing prices and increase the foreclosure cycle.

"Take, for example, the case of a buyer with absolutely no savings. Two identical houses are for sale on the same street. One is selling for $50,000 and the other is selling for $100,000, but the first would require a $5,000 downpayment. The seller of the second house is willing to take back a second mortgage for all the buyer's cash expenses. The buyer has no choice. They must buy the more expensive house or not buy at all.

That does not prove the house is worth $100,000. The financing was not typical. The buyer was not in a position to negotiate anything; the seller, in fact, was able to set the price. And arguably, the buyer was not particularly well-informed or acting in her or his own best interest in taking on a mortgage in excess of the property's true, $50,000 value."

So do your due diligence and check all the prices in the area.
Be careful and invest wisely.

Ed
filed under: Foreclosure Flipping