Short sales, foreclosures, REOs. For tough economic times, the real estate industry nationwide has developed a jargon all its own. And while there hasn’t been a lot of press about distressed properties on the Island, they do exist and may provide opportunities for patient, discerning buyers. Here’s a closer look at the ins and outs of “unconventional” houses for sale.

A distressed property is real estate that is under foreclosure or impending foreclosure because of insufficient loan payments by the owner/debtor. All forms of distressed properties exist on the Island.

A short sale occurs when a lender agrees to avoid foreclosure by allowing the home-owner to sell a property at a price that falls “short” of the balance due. A foreclosure is a legal process in which a lender takes possession of and sells a mortgaged property when the borrower is delinquent on payments. REOs are “real estate–owned” houses that have already been foreclosed and have become bank-owned properties.

According to Doug Reece, owner/broker at RE/MAX on island in Vineyard Haven, about 10 to 12 percent of the inventory of homes for sale on the Vineyard during the past two or three years has been made up of bank foreclosures. Compare that to 30 percent nationally and the Island market appears much healthier. “We haven’t been hit as hard,” Doug explains, “but we’ve still been hit.”

A certified distressed-property specialist and designated Vineyard broker for foreclosed properties by Bank of America, Doug is fluent in the language of the recession. His suggestions for buyers or investors interested in pursuing distressed properties: Look at conventional listings first. Often sellers are motivated and buyers can walk away with a bargain without navigating the long, frustrating process of trying to purchase a distressed property. Consider a distressed property only if you are unemotional, patient, and ready to assume some risk.

Jean Kelleher, owner/broker at Kelleher Real Estate in Vineyard Haven and West Tisbury, is also a certified distressed-property specialist. She recommends potential buyers be prepared to move quickly. Lenders have stringent requirements and there may be other buyers ready to make offers. Get a pre-approval commitment for financing from a lender. Review all websites for the area (including LINK, Cape and Islands MLS, Trulia, Zillow, Realtor.com, and MLS PIN) since many REOs are listed by off-Island brokers and don’t show up on the Vineyard’s LINK website.

Both Doug and Jean believe distressed properties, despite their complications, can represent significant opportunities for stalwart buyers. “They can be a great way for the first-time buyer to enter the market,” Jean concludes, but cautions they are not for the faint of heart.

Market update

The numbers are in for the first six months of 2011:

• 147 homes sold, down 17.4 percent from the same period in 2010, when 178 homes sold.
• The total value of home sales on-Island – $133 million – decreased by 18.3 percent from the first six months in 2010 ($163 million).
 • The average sales price for homes was $907,000, with a median price of $547,000.
• Homes sold for 93.7 percent of their asking prices and 91 percent of their tax-assessed values.

And as of mid-summer:

• There were 832 residential properties available for sale on the Vineyard, up from 700 last fall – and nearly double
the number of listings typically on the market prior to the economic slowdown of the past three years.

It’s clearly still a buyer’s market, although brokers report that many potential sellers are either waiting to list their homes in the hope that the market will rebound, or maintaining asking prices that are difficult to achieve in the present economy.

Data from Coldwell Banker Landmarks Real Estate in Vineyard Haven and LINK, the Island’s real estate listing service.

Real estate Q&A

Q: What improvements will increase my chances of selling my house and give me the best return on investment?

A: There’s no overall consensus among Island brokers but two out of three surveyed recommended improving bathrooms. “They’re critical,” says Julianna M. Flanders, owner of Flanders Up-Island Real Estate in Chilmark. “They should be clean, bright, and airy.” Neal Stiller, broker/office manager of Cronig’s Real Estate in Vineyard Haven, suggests kitchens and bathrooms, and recommends that materials be kept in line with the overall value of the home. Both also strongly advise neutral colors for any interior painting. Karen Overtoom, owner/principal broker of Karen M. Overtoom Real Estate in West Tisbury, is a firm believer in recommending improvements to sellers on a case-by-case basis. “There’s no generic answer,” she explains. “The best thing is to aggressively de-clutter and clean the house until it sparkles.”