USA Property Prices Explained

If you research the internet, you may find one or two units apparently available for sale on websites such as Zillow, at a lower price than Axis offers. You may also see 'average' prices lower than the price quoted. Clearly at first glance this appears to suggest that our USA property opportunities are not competitive within the market. However, this is not the case. Here are the six reasons why what you see does not represent the real value of the property.

Reason one: short sales

A 'short sale' is where a property owner owes more on the mortgage than the property is currently worth, e.g. may owe the bank $120,000 on a property now worth $70,000. The owner asks the bank if they will accept a 'short sale', i.e. take less than the amount owed. The bank often says "maybe, please bring us offers.”

The property is then marketed by a realtor (estate agent) at a very low price to encourage interest and multiple buyer offers. The property may be offered at $30,000 when the realtor expects final offers of $60,000. Consider the listing price like a starting bid in an auction.

When multiple offers are received, the best one is submitted to the bank. Even at this stage the bank may not accept it. This entire process frequently takes six months or more and the final buyer (if there is one!) usually ends up paying a very much higher price than that stated in the original listing.

Reason two: price dilution

Property portals such as Zillow show excellent five year price graphs that track price trends across zip codes and type of property. Even down to the level of one individual property. However, in the last three years these price trends have become much distorted and mostly no longer reflect a market value.

Why not?

Because listed on these portals are short sales, foreclosures and distressed sale properties. These extremely low-priced properties are now taken into account when working out an 'average' price. The result is that the 'average' - supposedly to reflect market value - is now below average.

Think about this example. Your house is worth $500,000. The person living next door in a similar house gets into financial trouble and has to sell quickly and a lucky cash buyer moves quickly and buys for $300,000. The price graph now shows an 'average' market value of $400,000. Do you think your house is worth $100,000 less just because the person next door got into trouble? Of course not!

Reason three: liens and charges

In the USA properties are frequently sold with liens (bad debts) and charges attached to them. This can includes unpaid taxes, rates, loans and more. In the USA, debts are typically attached to the address, as opposed to the name of the person living there.

Let's say a house is worth $80,000, but has $30,000 of unpaid taxes. The buyer will have to pay this amount, so they are definitely not going to pay $80,000 for the house. As a result the seller reduces the asking price to $50,000 - to reflect the fact that there are unpaid liens attached to the property. As a buyer, you won't know this from a property listing on the internet, but it explains why many times property seems absurdly cheap! In some cities the liens are so enormous that you can buy a house for just $1! But we wouldn't recommend it.

Reason four: out of date information

The multiple listings service (MLS) system used by the agent is pretty much up to date. However, listings on sites such as Zillow are sometimes weeks behind. This means that property which appears to be available may well not be available. This is particularly relevant to low price foreclosure property, often sold 'off market' to developers and banks (see below).

Reason five: developer and bank buy backs

This is particularly relevant to a condo development where there are multiple units for sale. If they are primarily owned by a developer or bank, selling them in a controlled manner, they simply don't want the odd foreclosure being sold at an artificially low price to upset the market value of the properties in that location.

So frequently, the moment that such a foreclosure property appears, it is purchased by the developer or the bank to maintain the integrity of pricing. This is to the BENEFIT of all investors and property owners in that development because it maintains a fair price for the property.

This often explains why a property listed for a low price is rarely available when you actually start enquiring about it.

Reason six: performing assets

You will see that Axis primarily offers tenanted property in Florida. When you buy a property already tenanted you are buying a 'performing asset'. The benefits of already having a tenant are:

1. No voids
2. Income from the first month
3. Certainty of demand
4. Certainty of the rental achievable
5. Management company in place geared to dealing with foreign investors

If you buy a property through a typical realtor then all these things may be uncertain. 

Conclusion

If you are based outside the USA and wish to invest in USA property, it is crucial to work with an experienced acquisition agent who has an equally experienced partner based in the US. At Axis, we have long-standing relationships with our strategic partners in our differing US locations. Each of our partners is an expert in that particular marketplace and has all the knowledge, contacts and professional relationships necessary for successful property investment in that area.

Call us on +44(0)1273 447300 today to find out more about our currently available USA investment opportunities, or with any questions you might have about investing in the US property market.

Posted in Property Prices

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