In the wake of the 2016 mass shooting at a historic Boston landmark, some investors are looking to buy an estate for more than the price of a single home.
The average price of an all-cash purchase in Massachusetts in 2016 was $721,000, according to a report from real estate broker Roberta Kaplan, who works with many clients.
While there is a small market for this type of transaction, a majority of the transactions fall into the “underwater” category, which includes properties in the “overdraft” category.
“They’re not worth the cash, they’re not underwater, they just need to be cleaned up,” Kaplan said.
She told Business Insider the undersea real estate market is still relatively small compared to the market for real estate in the mainland U.S., but it’s growing.
She said there are several factors that contribute to the underwriting market, and a major factor is that the underwater market tends to be much more stable.
“There’s a lot of things going on in the underwater real estate industry that people don’t realize about,” Kaplan told Business Insider.
“You have to think about the value of the property, the quality of the homes that are under construction and how long it will take to complete those homes,” Kaplan added.
She also said the underpayment industry is one of the primary reasons for underwater properties.
“Many times, underwater properties are oversubscribed.
You have to do a lot more work and go through an extensive appraisal process before you can put the underwater home on the market,” Kaplan explained.”
That’s why you’ll see so many underwater properties come back on the markets after a couple of years.”
A similar phenomenon is happening in New York, where home prices have soared in recent years as the real estate boom has turned New York into one of America’s hottest real estate markets.
“The overdraft market is what I think is driving prices in New Jersey, Pennsylvania and Connecticut, which is why prices are going up there,” said Michael B. Miller, an economist at the real-estate brokerage Miller Samuel.
The underpayment market is driven by a number of factors, Miller said, including high home prices and the lack of quality homes under construction in the states.
“It’s a very high turnover,” Miller said.
“If you want to make a sale, you have to have the cash.
It’s a little more of a lottery than other markets.”
In Massachusetts, the under-water market is a big one.
“Most people don, in fact, believe that the understated value of their homes is more important than the actual value,” Kaplan shared.
But in some states, underwriting rules may make it even harder to sell underwater properties, especially in areas where there are few underwater properties or properties that have been underwritten for years.
“I think in the Northeast, for example, if a property was underwritten many years ago and is no longer underwritten, that property is no better than the one it was under-underwritten for,” Kaplan pointed out.
“But there are some states that are very restrictive in how they are selling homes,” she said.
The majority of Massachusetts properties that were sold under underwater conditions were bought by “under-underwriters,” who purchased them for a fraction of the market value.
“In some states it’s a couple hundred thousand dollars,” Miller noted.
“In other states it can be millions.”
“It can take a year or more to sell a property,” he added.
“We see an uptick in underwater properties because there’s no demand,” Kaplan noted.
“When we talk about underwater property, we’re talking about properties that are in under-subpoenas or are under-performed and then we’re seeing that increase.
In some states they’re doubling their underwriting price.”
She said she believes the increase in underwater listings in the state is a result of the lacklustre underwater properties that many investors are buying.
“People are just getting caught up in the excitement of buying a home,” she explained.
“But it doesn’t make sense to me to sell an undervalued property for $1.5 million because the home is no good.”
In many states, the sale of underwater properties has a lower commission than selling a single-family home.
In Massachusetts where she works, there are three tiers of underwriting fees for under-sold properties, with the highest fee being $750,000.
“Some states don’t have any underwriting for underwater homes, and in those states, you can sell a home for $2 million and it’ll be sold at a loss,” Miller explained.
In the Northeast and California, the commission is set at 25 percent.
“For homes in California that are listed as under-purchased, you’re looking at about $2,000,” Miller pointed out, referring to a typical sale in New England.
In states like Florida, the sales commission is even lower,