Do you really get a bargain on a mortgagee sale?

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Mortgagee sales went for a median discount of 19 percent in 2023. File photo.
Photo: RNZ / Marika Khabazi

Mortgagee sales are selling for an even steeper discount than normal, new data shows.

The number of mortgagee sales remains low, but there are concerns that mortgage stress is growing. Centrix data in June showed that 22,000 home loans were “past due”.

TradeMe currently lists about 50 properties for “mortgagee” sale.

Data from Corelogic showed that through 2022, mortgagee sales went for a median discount of about 16 percent compared to Corelogic’s calculation of their value. In 2023, that slipped to 19 percent.

That compares to a discount of between 10 percent and 13 percent through 2018 to 2021.

Corelogic head of research Nick Goodall said there had only been six mortgagee sales so far this year that had all the data required to calculate the discount and the performance was similar to 2013.

Non-mortgagee sales were changing hands for a median of 2 percent and less than 1 percent discount compared to their valuation in 2022 and 2023, respectively.

Goodall said the discount was probably because of the risks related to buying at a mortgagee sales. Sometimes, buyers cannot view a property and there is no guarantee that it will be vacant when the property changes hands.

“There’s a little bit of unknown when buying a property through a mortgagee sale and that appears to show through in the stats.”

Property investor Steve Goodey said people might also hang back from a mortgagee sale because it was common for the owner to find a way to refinance it and remove it from the market before it sold. He said people did not want to spend the time and money doing due diligence on a property only to find that a sale was not going to happen.

He said buyers also had to be prepared to get insurance on a property that they might not have properly inspected. Banks might also want a building inspection, which could be difficult to arrange.

He bought a property in Stokes Valley for $498,000 via a mortgagee sale last year, which had a council valuation fo $740,000. But the property required significant cosmetic work to make it habitable.

Ed McKnight, economist at Opes Partners, said sellers could sometimes get upset when a property was advertised as a mortgagee sale because they thought it might sell for less.

“But seeing ‘Mortgagee Sale’ on a listing tends to attract more buyers who hope to snag a bargain. My sense is that while some people hope to get the property cheaply, it also attracts more competition, helping to support the house price.

“However, mortgagee sales are different from normal sales. The properties are sold as-is and you don’t have the right to a pre-purchase inspection. On top of that they are sold without chattels, which means that the current owner has the right to take out curtains, carpets, ovens, appliances and other things.

“This means there is more risk when buying at mortgagee sale, so the price should be lower than it otherwise would be. On top of this, some sellers are upset with the banks. They then will sometimes refuse access to the property and the real estate agent will need to do a kerbside viewing.”

He pointed to coverage of the sale of Nikki Connors’ apartment in Auckland’s Orakei – an agent held a kerbside open home in June even though buyers could not see the property from the road.

“This would lower the price because the buyers are then taking on more risk. So mortgagee sales should sell for less. Not just because the owner is serious, but because there is less certainty around the property. “

Infometrics chief forecaster Gareth Kiernan said another factor that would affect the price was that mortgagee sales were generally much less likely when a market is performing strongly.

“Thus they are likely to occur when potential buyers have a wide choice of properties available to them. In the current market, we’re seeing a pool of well-priced and well-presented properties that is turning over, but properties that miss the mark on one or both of those criteria are not selling and simply sitting on the market.

“That environment makes it that much tougher for the mortgagee sale process, and is likely to increase the size of the ‘discount’ required for a buyer to be interested in such a property.”