Zombie foreclosures are lingering on in many real estate markets, and many buyers are wondering, are they a smart investment?
Zombie foreclosures are homes that were vacated by the owners after the foreclosure process began. During the foreclosure process, which can take up to several years, these properties may have gotten very little attention, and some fall into a zombie-like state of disrepair.
According to housing data company RealtyTrac, zombie foreclosures sell, on average, for 22 percent less than owner-occupied foreclosures, giving banks a huge incentive to keep homeowners in a property to care for it until the foreclosure is completed. Investors should see these properties as especially well-priced opportunities, assuming that they haven’t fallen too far into disrepair.
RealtyTrac has released its Zombie Foreclosure Report for the second quarter of 2015. Here are some statistics that could help buyers looking to capitalize on these opportunities.
Of the total 527,000 properties currently in foreclosure nationwide, 127,021 have been vacated. That means zombie foreclosures are holding onto a 24 percent share. This number is down 11 percent from the first quarter of 2015 and down 10 percent from the second quarter of 2014, but it’s still worrisome.
The highest rates of zombie foreclosures are in the New Jersey, Florida and New York markets. In fact, these foreclosures still increased in 91 of the 183 metropolitan areas analyzed, including New York (up 38 percent), Los Angeles (up 39 percent), Houston (up 38 percent), Philadelphia (up 19 percent) and Boston (up 14 percent).
Major markets where the number of zombies decreased from a year ago include Chicago (down 28 percent), Dallas (down 27 percent), Miami (down 46 percent), Atlanta (down 33 percent) and Phoenix (down 14 percent).
The average market value of an owner-vacated zombie foreclosure in the second quarter of this year was $195,856, 22 percent below the average market value of owner-occupied foreclosures at $251,236. If these properties had been foreclosed faster, within six months to a year, they likely would have been in better shape and sold for much more.
Investors looking to breathe some life back into these properties should keep some of these numbers in mind and carefully inspect zombie homes before making an offer. Although zombie foreclosures can be harmful for homeowners still on the title, new buyers could find them to be excellent investments.