The two-story, custom-built house in the Timberline neighborhood
listed by Realtor Steven Scott isn’t your typical distressed
home.

The house is in nearly the same pristine condition as when the
builder turned over the keys to the first buyers several years ago.
The 2,700 square-foot home was built on a large hill so it escaped
the heavy floodwaters this summer.

So why is the home listed for only $107 a square foot – about a
third less than the area median?

The answer is that distressed homes in the greater Flagstaff
area – which roughly account for 30 percent of single-family homes
sales last year – each come with their own unique story.

The home was designed by and for a retired couple from Oregon
during the height of the real estate market. Perching the home on a
hill gave the owners spectacular mountain view but left them with a
hefty mortgage, Scott said.

A downturn in the economy meant the pair could no longer afford
their home, so they turned to Scott to sell the property as a short
sale for $299,000.

A short sale is an option for homeowners who need to sell their
house for less than the loans are worth.

To qualify for a short sale, homeowners must be facing financial
hardship like a decline in their monthly income and are near
bankruptcy.

Within three days of their Timberline home being listed, the
couple got their first offer. Scott wasn’t surprised, given the low
price per square foot of the custom-built home.

“We are rolling back pricing to the mid- to late-90s at this
point,” he said. “Buyers are (interested) if the price justifies
it.”

He has never seen a real market quite like this in his 13 years
of selling homes.

“We’ve never been in a declining market where the area catches
on fire and then it floods,” he said.

Outlying areas like Timberline are seeing some of the biggest
discounts, partly because the uncertainty of home values given the
possibility of the flooding, he said.

“It has been my experience that when Flagstaff gets a cold the
outlying areas get pneumonia,” he said.

The deal fell through when the bank holding the note for a
second mortgage insisted on an additional $4,000. The would-be
buyers balked.

TRASHED, BUT FIXABLE

Across town, Realtors Annette Kershner and Freddi Paulsrud with
Russ Lyon Sotheby International Realty have seen their share of
trashed homes.

Roughly 75 percent of their listings are either short sales or
bank-owned properties, Kershner said.

She says the top two reasons for those seeking a short sale in
Flagstaff are either a loss of income or medical issues.

“A lot of people are losing their job,” she said.

Homes undergoing a short sale are usually in good condition.
Foreclosed homes are a different story, however.

Kershner and her partner Paulsrud have some homes literally
gutted by former homeowners.

“In a bank-owned property, anything that is easy to pull out
they take,” Kershner said.

A Certified Distressed Property Expert, Kershner has seen enough
trashed homes that she has a close working relationship with a
local company specializing in cleaning up distressed
properties.

The pair used to exclusively list luxury homes in Flagstaff but
saw how distressed properties were becoming a larger part of the
industry.

“Two years ago, I knew as an agent we needed to change and
follow the trend of short sales and bank-owned properties,”
Kershner said.

HOLDING ON

Back in the Timberline neighborhood, a bank-owned home listed by
Rosemary Harris with Century 21 Metro Alliance got a serious offer
on the same day it was listed.

The three-bedroom, two-bath home’s price – $199,000 – paired
with the fact that it was not in an area damaged by flooding, made
it attractive to homebuyers, she said.

There are relatively few properties in Timberline that are
listed for sale.

But of the eight listed for sale in the neighborhood, five are
either under contract or have bids out on them.

Local Realtors believe there is a huge inventory of properties
in the neighborhood owned by families who lost their equity after
the floods and essentially are “upside down” in their
mortgages.

Scott believes homeowners who do not need to move are attempting
to stay in their homes, despite the ongoing flooding issues.

“There are people out here that love their house and have good
jobs,” he said. “Regardless of the economy and the area, there are
a lot of people who don’t sell just because they don’t need to
sell.”

Joe Ferguson can be reached at 556-2253 or
jferguson@azdailysun.com.