By Kimberly Miller

Buying a South Florida foreclosure isn’t the slam dunk steal it once was, according to a new report that found shrinking discounts on distressed properties.

Homebuyers in Palm Beach, Broward and Miami Dade counties could expect only a 2.9 percent savings in September on the purchase of a foreclosed home compared to if the same house was sold at a non-distressed price, said analysts at the real estate analysis firm Zillow.

That discount is down from 6.8 percent during the same time last year and a whopping 22.7 percent lower than the savings experienced in August 2008 — the peak foreclosure month in South Florida, according to Zillow.

The report, scheduled for release this morning, found the nationwide foreclosure discount in September was 7.7 percent, down from 9 percent last year and 23.7 percent in August 2009.

Zillow Chief Economist Stan Humphries attributes the shrinking gap between a foreclosure sale price and traditional price to a continued competition for cheap homes, especially in areas where inventory has decreased.

“The smallest foreclosure discount is found in places where competition for homes is so high people are willing to pay the same amount for a foreclosure re-sale that they would for a non-distressed home simply to take advantage of historic affordability,” Humphries said in a press release.

In some of the nation’s hardest hit areas for real estate, such as Phoenix and Las Vegas, Zillow measured no differences between a home’s foreclosure sale price and what it estimates it would have sold at if it was a traditional sale.

The largest foreclosure discounts were recorded in Pittsburgh (27.4 percent), Cleveland (25.8 percent) and Cincinnati (20.2 percent).

While some South Florida Realtors and consultants are skeptical of the Seattle-based Zillow’s price estimates — the company’s website says its estimates are within 5 percent of the actual sales price 30 percent of the time — there is anecdotal evidence supporting today’s report.

“It makes sense because what I’m seeing is investors are finding fewer opportunities to buy a foreclosure and see a big profit,” said Sherry Lee, broker/owner of Lee Property Sales in West Palm Beach. “There is a demand, but if they can’t buy it and sell it to make a profit, there’s no point.”

Palm Beach County’s inventory of single-family homes was at 4.7 months’ supply in September, down from 10.7 months last year. A six months’ supply is typically considered a balanced market. At the same time, prices are on the rise. The median sales price for a single-family home in September was $224,000, a 25 percent increase from last year.

Juan Restrepo, vice president of 32 West Realty in West Palm Beach, said his company deals mostly with cash investors who want to buy a home, rent it out, and sell it in a few years for a profit.

But those deals are harder to find, he said.

“We have seen a tougher market in trying to get as deep a discount as we would like, but they’re still good,” Restrepo said. “We have a couple of agents who all they do is look for these opportunities and they say there is nothing out there right now.”

And it’s not always a boon for regular homebuyers when an investor is shut out, Lee said. Homebuyers often can’t get loans for the kind of distressed properties investors pick up for cash because the homes don’t appraise high enough.

“In those cases, investors really serve a purpose in going in and fixing up the homes, then selling them for a profit,” Lee said. “But I haven’t seen that profit margin out there for a long time.”


Florida foreclosure discounts in September and during the peak foreclosure month for that region

South Florida; 2.9 percent, peak 22.7 percent

Orlando; 4.6 percent, peak 24.4 percent

Tampa; 9 percent, peak 29 percent

National; 7.7 percent, peak 23.7 percent

Source: Zillow