If you hear the news and only manage to remember the totals and averages, the harm to your investment and asset management may be devastating. This statement of mine is about as helpful as the news that grabs your attention. Big numbers and sensational headlines always get audience attention and sell ad space, but if you are alert for the purpose of buying real estate at a good deal (like taking advantage of a short sale, auction, or some other form of distressed property transaction) you must at least define your objective and the length of time of your anticipated ownership (your holding period). Many will simply conclude that, “the short sale price is fantastic and I’m just going to live there until I…” graduate, get transferred, get married, need to expand, retire?

If all things are equal in comparing two short sale “deals”, i.e. the size, age, quality, floor plan, builder, colors, etc. and they both have the same “location, location, location” factor, they are still not equal. There are other inconspicuous factors that will undermine the value of one more than the other and it could easily happen before your “I’ll live there until I …” date.

For example, in the community of Eagle Mountain, Utah there are a number of notices of default that forecast the impending short sales that may likely come onto the market in addition to the ones that are already being offered for sale. Those notices are for homes in nearby neighborhoods of homes in similar plats (subdivisions) built by comparable builders if not the same builder, of the same quality and even the same or very similar floor plan. They are available for the same price range and may even have been financed by the same institution. The difference is that one neighborhood has more of these distressed properties that the other or will have when the newly noticed properties come onto the market. If The Chatterfield Downs neighborhood has a higher concentration of the distressed properties than The Sheffield Meadows which neighborhood will have a greater erosion of market value now?

After the market settles down and all the distressed properties have been purchased and new occupants have settled in are all the problems over? Who are those new occupants if they were those who could afford the discounted price? They are either investors or buyers who could not afford a higher price probably. The investors will have since rented the property and the buyers who got in because the property was available at maybe a 1/3 less than the homes were originally marketed for will generally be living like people who can only afford homes that would normally be found in a neighborhood of less expensive homes. So you see more unpainted fences, poorly manicured yards, disabled cars or unfinished do-it- yourself projects in a neighborhood of $240,000 homes or one of $160,000 homes? There is a principal of conformity that is applied in appraisals that considers the general condition of the homes in a neighborhood.

Will you be flocking with the rest of the birds upon news of “good pickins” in towns like Eagle Mountain or Lehi, Utah or do you think you may reconsider quiet markets like Orem or Provo, Utah where the short sale properties are less concentrated. In Eagle Mountain (the Notices of Default in 2008 represented approximately 5.3% of the total homes, as calculated by Newreach, but the concentration in the neighborhoods around Clubhouse Lane, Jefferson Dr, Pinehurst Dr, Franklin Dr, Appaloosa and Mt Airey Dr was 33 notices of default since January of this year (Utah County records) while the nearby and similar area around Lewis, Ute Dr, Clark, Rose St, Golden Eagle Rd, Chilton, Dillons Dr, and Smith Ranch Rd saw 19 new notices. Could you draw any hunches about the future values between these two areas? Let’s look at Orem. The notices of default as shown by the same source was approximately 1.5 % of the total homes and the greatest concentration since January 2009 was in the northeast area of 500 North to 1600 North and 500 East to 1600 East: only 11 homes.

Statistics like these will not be broadcast like the other numbers that are so sensational, but now you know another perspective to consider. I invite your comments and arguments. Those too will have some effect on real estate in your area if not others. Please respond to this blog.