Clark Howard's Tips

Capitulation has benefits for buyers and sellers

August 13, 2008

Clark wants to share some information that could impact those in the housing market as potential buyers of distressed real estate and those trying to sell a home in a neighborhood that has foreclosures.

In economic terms, we're beginning to hear that "capitulation" has come. What that means in plain English is that banks have sobered up and are dropping their prices on REO (real-estate owned) properties, according to The Wall Street Journal.

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Previously, the banks had been asking unrealistic prices that were comparable to the outstanding loan balances on foreclosed properties. No wonder they didn't get any bites! So it may be worth your while to make another offer on REO property right now. The banks are more likely to be humbled after sitting with that house in inventory for this long.

On the other side of the ledger, capitulation means that you should probably have a new target price in mind if you're selling in a foreclosure-riddled neighborhood.

Think about it this way: If REOs sell after banks come down in price, then those lower sale prices become the comps you're competing against in the area. It's incumbent on you as a seller to photograph the sad, rundown foreclosures so that buyers can see exactly why they sold for less than your house. That way you can justify asking a higher price for yours.

Meanwhile, Zillow.com is reporting that roughly 30 percent of people who bought during the last 5 years are upside-down in their homes. Zillow also has a new feature that allows you to see national home value trends on an interactive map of the United States.

Of course, talk of lower home values comes with Clark's usual caveat: Don't worry if you're not selling right now. None of this impacts you. In fact, you can use the decline in home values to contest your property taxes. Check with your local tax assessor for details on entering a dispute.

More Clark Howard Home Tips Capitulation has benefits for buyers and sellers  Inflated home values are in the eye of the beholder  Is it time to raise your homeowner's coverage?  A bust, a bailout and new mortgage lending rules  Pay attention to foreclosures at the risk of missing other deals  Hawaii, California mandate new green energy measures  Jumbo loan relief finally hits the market  Consumers win the battle of Real Estate commissions  Investors to hand you a mortgage reduction?  Occupancy fraud stalls housing market recovery  Full list