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Archive for the ‘foreclosures’ Category

Has the Whole World Gone Mad?

(Water Sobchak: The Big Lebowski)

 

A funny thing happened to me again yesterday. I call is Foreclosure Mania, that intense desire to purchase a foreclosure, so much so that all other listings on the market are ignored regardless of their inherent value. The following anecdote will demonstrate how the affliction manifests itself in today’s buyer. But first, a description of the property involved.

This is a very cool, shed-style, 80’s era cedar-sided contemporary in the woods for 114k.  Move-in ready but could use some updating in the kitchen and baths, and all this could be done on the cheap, but the improvements are not absolutely necessary.  Lots of wow factor to the place. Open floorplan; vaulted ceilings; hearth-like fireplace; much like a mini ski-lodge). In my opinion, a steal at 114k. And that is the asking price. These are negotiable buyers. Also a very good location that is convenient to town, campus, and the East Side Athens retail corridor with grocery stores, banks, restaurants, cafes, bars, etc.

OK, so last night I got an automated text message from our lockbox provider, telling me that the above home was shown by a local realtor.  The house is vacant house, so I had no prior indication that the place would be shown, which is fine.  The showing agent is also a good friend of mine.  I called him a few hours later for feedback. He said the showing went well and that he was showing houses to a friend and he really wanted her to see my listing, which had been on his radar for a while. The basics of the conversation: Young woman buying first home, and according to the agent she “doesn’t have a lot of scratch” (love that term!).  She wants to be on the East Side of Athens.  She likes the house very much but “really wants to buy a foreclosure.” There wasn’t a touch of irony in how he said it. Forget that the house already has a killer price tag.  Forget the new roof, new interior paint throughout, a two car garage in a neighborhood of one car garages, new HVAC, original owner and more.  Forget that you would never find a foreclosure on the East Side in this good of shape at this price.  Not in a million years. Forget that it is already priced like a foreclosure and the sellers have told me to market their negotiability.

 

What gets me is that the buyer and presumably my friend are both wearing blinders (I chastised him for this, don’t worry). I mean, what are you shopping for, a home or a foreclosure? That’s like saying, “Yes, I realize that is a great sweater at a great price and I really really like it, but it’s not on the clearance rack!” OK, It’s not a closeout! It’s not on sale! But darn it, this is a kick butt house in a great college town, and it can be yours for probably lower than 114k! One Hundred Fourteen Thousand Dollars! Hello?

Sadly, I’ve heard this story so many times in the last two years that I am beginning to have a visceral response each time I hear it.  Last night, I was driving while having that conversation, and I began looking for the largest hardwood tree close to the road so I could steer my car right into it and end the pain! Nahh…that’s too easy. I guess I will just grin and bear it.

But seriously, somebody tell me what I am missing? Am I not seeing something here that would explain the near sightedness on the part of the buyer and her agent? Isn’t it incumbent upon him to step up and disabuse her of her notions? Instead, I think he gulped some kool-aid too.  When is this going to end?

“I used to be disgusted, and now I try to be amused.”

(Elvis Costello: Angels Wanna Wear my Red Shoes.)

 

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“Stay alive as long as you live”

  J.W. Fanning

 Bloggers are an interesting bunch.  Correction: GOOD bloggers are an interesting bunch.  They post regularly, often for years, even when no one is reading.  They just keep going. But here’s the thing: some of the busiest folks I know still carve out time to blog.  My sister is a classic example. Check her our out at The Blog That Ate Manhattan.    She is a physician in NYC and she is also affiliated with a med school there.  She runs a busy practice, does research and publishing, raises two kids, and seems to post weekly two to three times.  Add to this the fact that we lost mom in December and our sister Frannie in May and one could understand a lapse.  That was my excuse, anyway.  The last year has been a blur for our family. And the RE biz for me has been as all-consuming as ever.  Excuses. Sister Peggy is my new inspiration.

My Last Post was in March 2010. Here’s a Random Recall of last 16 Months:

I’ve had probably close to 50 closings since my last post.  That is 50 transactions, each with their own unique challenges, sets of buyers/sellers, inspections, reviews, revisits with contractors, lenders, appraisals, rounds and rounds of negotiations, walk-throughs, closing table pageantry, hugs, and the occasional tears.  Bills, Fees, License Renewal Classes! To say we age in dog years in this business is not complete hyperbole.

I won Best Realtor 2010 in Athens in the Athens Banner Herald’s “Readers’ Choice Awards!” I finished 2010 as the  #2 agent in our office, the largest firm in the Athens area, and I reached the Circle of Distinction in our local association of realtors. Also was awarded a President’s Circle Plaque by Coldwell Banker Corporate (still not sure what that indicated but I was happy).

Last time I posted, the majority of the market was dominated by homes sales in the 100k to 200k range.  Now it is driven by the 30k to 120k range.  However, the over 200k market is decidedly busier than last year and the luxury home market (400k+) has gotten a bit unstuck (mostly in Oconee County).

 

Foreclosures have continued coming but it’s a bit better here than nationally.  The cumulative and evolving effects are rapidly becoming clearer.  Over a million last year and a million more coming.  HUD owned houses are popping up everywhere (There’s an app for that!), and word on the street is it is going to take 20 more years to sort that all out. Cash buyers are descending on distressed properties, and who wouldn’t? Deals are crazy! A 3/2 four-side brick for 59k?  25 Condos on ATL HGWY for 17k a unit? Almost fully rented? Are you kidding me? Talk about cash on cash return! Speculative builders are snatching up developed lots at fire sale prices (more on that in another post). Fully a 1/3 of the nation’s RE transactions have been cash purchases, and their still coming…

 

Interest rates continue to be at staggeringly affordable levels right now.  Money has never been cheaper for as long! Ironically, buyers have never been more hesitant to pull the trigger on purchasing.  Lenders are treating even the best buyers like they just got out of prison for embezzlement, but dealing with their requirements is a small price to pay for taking advantage of cheap money and cheap home prices. 

And…the real estate profession continues to surprise and awe. It is a good feeling to be part of  and successful in a real estate market that continues to challenge resolve and steadfastness. This is a ride you can’t jump off once you choose to jump on, I’ll tell you that.  What’s the poker term, All In?  I will refrain from any DNA analogies but RE seems to be in one’s fiber after a while…and that’s fine with me.

 

“Pluck the thistle of doubt and plant in deep and fertile ground the rose of hope.” J.W. Fanning

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I will make this one short since it is really a footnote for the last post.  In a nutshell: If you are buying a foreclosure, make sure you have some type of inspection period (banks and the feds usually grant you about 5 days…short but doable if you move quickly to do you due diligence).  During this period, GET THE SEPTIC SYSTEM INSPECTED! This service usually requires a system pumping in order to take a good look at it, and if you end up not buying it, then the seller just got a free service from you, but it is worth the 250.00 or so (Athens, GA prices) to have the inspection done.  Don’t make the assumption that because the foreclosure is a newer house that the septic system is probably fine.  My septic guy (yes, I have a septic guy…) told me recently of a new system in which the leach lines were never installed.  Just a big cauldron of poop under ground.  Mmmm…  Anyway, new houses can have failing systems just as easily as older houses, especially in ATH area after the tremendous amount of rain we had last year.  Finally, there are many reasons that owners get foreclosed upon, so I do not want the next statement to be taken the wrong way, but I will say it anyway.  Some people should never have been allowed to purchase a home with someone else’s money, and these buyers knew it from the start.  They never took care of their homes, and totally trashed them from the day they entered the place.  How else do you explain the absolute digusting/horrible state of a two to three year old home?  Logically extend this reality to the septic system, and just imagine what the state if it could be.  Enough said…JP

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joe_polaneczky1If you listen to the talking heads in the media these days, you’d think there were foreclosures on every corner of every neighborhood, like gorgeous low hanging fruit in mid-summer.  Let me set the record straight:  Nothing could be farther from the truth.

I have been involved in easily a half dozen foreclosure transactions in as many months, and while there are many bank-owned properties out there, most of them are homes I wouldn’t take if they were given to me, and I sure as rain wouldn’t advise my clients to go after them.  For myriad reasons, most properties are just plain too risky. 

Things to consider when researching bank owned property:

Comparative market analysis.  Is this really a good deal?  How many foreclosures have there already been in that subdivision?  How many more are likely? Got a crystal ball?  What if you buy it for what you consider a good deal only to have foreclosures continue and you end up getting sucked into exactly the same thing that resulted in the property being a foreclosure in the first place?  Does the house need so much work that you end up never realizing a “deal?”  What are your intentions for this property?  Looking for a home?  How long will you be living there?  Looking for a flip? Check your numbers twice!

So where are the good buys, you know, the ones you will be bragging about in five years at your back yard cook out?

They are in established neighborhoods.  They are the atypical foreclosure in an otherwise stable neighborhood.  Call it the freak foreclosure.  And when you find it, get on it!  But don’t’ expect to low ball and walk with the steal of a lifetime because you are going to be one of a handful of buyers whose agents are searching for the exact same thing. 

And guess what else! Listing agents who understand the good foreclosure from the bad foreclosure will use the fact that banks typically ignore deadlines to hold off on responding to your offer until another offer comes in so they can instigate a bidding war.  Think I’m kidding?  This is happening more and more, and I don’t think it’s a coincidence.  All interested parties are then asked to sign a document, stating they understand there are multiple offers, and they ask you to bring a new “best and final” offer.  The bank also reserves the right to counter your best and final or just turn down all the offers and tell everyone to get the offers up.  Talk about hard ball. 

Make no mistake about it, though, these purchases typically represent some type of discount to the homes in the subdivision, but the home may be trashed or needing 5k to 10k in work, bringing you back up to the general tax assessed value.  In the meantime, your discounted purchase will now count against the neighborhood because it will now be a comp used when appraising homes in that area. Are you getting this?  Almost a be careful what you wish for type situation.

So are there any scenarios where foreclosures are a net to buyer good deal? 

Absolutely.  I closed on one three weeks ago (it took a month longer to close but it closed).  My client paid in the 170’s with 6500.00 toward closing for a home that was tax assessed in the 220’s.  All it needed was some paint inside, and a few minor repairs.  BUT…when the buyer’s appraisal came back during her financing process, it was valued in the high 180’s.  So, she got a deal, but not a screaming deal.  Other homes on the market in that neighborhood are listed in the 210-220’s but this is nothing for my client to celebrate.  Those currently listed homes are not going to sell in that range, or nowhere near it, because my client just paid in the 170’s for a home tax assessed in the 220’s.  The market is correcting.  The county assessor has not yet caught up with the market, and the listing agents out there have to have very uncomfortable conversations with the sellers trying to sell their homes for the current but inaccurate tax assessed value.  However, my client was looking for nice place to call home, and she is tickled, knowing the purchase exceeded her expectations, and that is what matters. 

Take away message:

 Not all foreclosures are the same.  Hope for the best deal in the world, but prepare for getting a good deal at best.  Know when you don’t know, and hire someone who does.  As a buyer, you don’t pay a dime for experienced representation.  There is so much more to tell about the foreclosure purchase process, but that is enough for now.  JP

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Until very very recently, Athens was in the midst of a residential building boom, and the precursor to any building boom was also booming.  I’m talking the development boom.  You can’t build homes in new neighborhoods unless land is readied by removing trees (hopefully selectively), grading the land, installing sewer and utilities, building roads and sidewalks, etc. 

Once this is complete, the developers can do a couple things.  They can cash out by selling the entire development to another developer/builder specializing in the construction of new subdivisions, or sometimes individual builders will also purchase from a developer lots within a subdivision in order to build one or more homes as spec houses.  A spec house is a house built before there is a buyer.  The builder is spec-ulating that a buyer will come along during or just after the finish to buy the house.   The builder gets a construction loan to build, and they pay the interest only on that loan until the house is sold.  At the sale, the builder pays off the loan and what remains is the gross profit. Sometimes developers are also builders or work closely with one builder who has exclusive rights to a subdivision.  There are other scenarios too, but for now that gives you the idea.

Beside individual homeowner foreclosure, the big issue facing the national and Athens, GA market right now is the builder foreclosure.  When a homeowner defaults, one home gets added to the inventory of homes on the market.  When a builder experiences foreclosure, many many homes can be added to the inventory, further driving up the supply while the demand isn’t seeing an attendant jump.  The result is a continued seeming free fall on home prices in a given market area. 

The extent of a drop obviously depends on the market area.  Areas of the country that saw explosive new construction growth in the last ten years are now experiencing huge numbers of new and unfinished homes being “dumped” by builders.  Bankers tell stories of otherwise historically successful builders coming into the bank literally with the keys to homes and handing them over.  No buyers mean no cash flow, and no cash flow means interest on construction loans isn’t getting paid, and that equals default.  Why no buyers?  By now, that is a story so over told that even my seven year old son is talking about it. 

50 Cent Question:  Are Builders in Athens, GA Having Financial Troubles?

Big Time!  Huge planned unit developments (PUD’s) around town are sitting dormant with a handful of homes already built and nothing else.  The promises of inviting amenities like a clubhouse, tennis courts, pool complex are not delivered on, and the three or four buyers who are already moved in are scratching their heads as they survey a bleak scene that was once a bustling construction site.  Builders are packing up and handing over everything to the bank that underwrote the project.

I know this sounds sort of too truthful, but this is what we are seeing out there right now.  In some less-bad situations, projects have stalled after phase one is completed and maybe not sold through just yet, but there are at least the beginnings of a neighborhood.  Phase Two will eventually occur, but when you have a phase one stalled, things are not good.  When you have homeowners already in the first (and now only) homes, things are definitely not good. 

 High HOA Fees

When the HOA fees in a PUD are initially set, the figure is generally determined through projected sales and occupancy.  When the occupancy isn’t there and the upkeep of the PUD is still required, someone has to pay for it, and the burden falls on those precious few who moved in early. 

 Would you buy in a new PUD that has stalled?

I had an agent tell me recently about the exciting new price drop in a subdivision she was representing.  “Joe, the builder just slashed his prices 30K and he is taking all offers.  He needs his last 8 units gone by October 1st.” 

End of statement?  That was it! The pitch should have finished with “…or the bank takes back the houses and he is going under.  And if he does sell the last units off, he is still out of there and heading back to Atlanta.  By the way, the amenities aren’t in yet, and the HOA fees just tripled.  It’s a PUD with 100 single family homes and 24 luxury townhouses planned, but only 7 homes and three town homes have been built and the project has basically stopped for the foreseeable future.”  So, would you buy?  Just be glad you didn’t eight months ago…

Are there any builder foreclosures in Athens, GA that are worth going after?

Yes.  As always, it is a matter of knowing the subdivisions.  You need to be clear what kind of subdivision you are looking into.  Is it a brand new subdivision?  Who is building in it? Was it one large builder/developer?  If so, maybe buying ain’t such a good idea because projects like that may be a little more than stalled.  What’s the difference between stalled and dormant? Time.

If the foreclosure is an individual small-time builder with one home in a subdivision that has already transitioned into becoming a neighborhood, then you have a chance at getting into a nice community at a discount.  A great example of an area that fits this description is Lane Creek, a golf community in Oconee County.  I am certain there is at least one builder foreclosure out there right now, but the neighborhood is established, very nice, still desirable, and worthy of consideration.  For the sake of decorum, I will refrain from giving you an example of a not so desirable area, but with my clients I sure wouldn’t.  As always, just make sure you are working with a realtor who knows the market and who is unwilling to take a risk with your money.

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With the glut of homes on the market, made worse by the number of foreclosures continuing to hit the market, it is only natural that people wonder if there is a unique buying opportunity out there for them.  Everyone likes a deal and who likes to pay retail, right?  This will be the first in a series of posts that will give you the low down on the “deals” out there in the Athens regional area.  Yes, there are some interesting foreclosures out there, but the lion’s share of them should have attached to the sale sign a rider that says “Buyer Beware.”

The Falling Knife Foreclosure

Conventional wisdom says foreclosures are ripe for the picking all over the nation, and that wisdom is pervasive here in Athens, too.  My advice is to exercise extreme caution when going after foreclosures around Athens.  Here’s why.  If you look at the number and location of homes currently in foreclosure or being short sold, you will see the same neighborhoods coming up again and again.  What does this mean?  First, Athens and the surrounding areas went through a period in which the sub-prime money lending frenzy resulted in developers cranking out instant subdivisions to take advantage of the buying power first time homebuyers were wielding due to sub-prime lending practices.  Now that many high risk buyers are starting to default for a number of reasons, these neighborhoods are seeing a disproportionate number of foreclosures, meaning the foreclosures are not spread out evenly with regard to location and price range.

Foreclosures in these “sub-prime” subdivisions are causing a decline in home prices in these young neighborhoods, leaving some homeowners with negative equity in their homes.  Typically when doing a comparative market analysis, agents could ignore the occasional foreclosure in an area because it would skew the valuation of a home.  But now with so many foreclosures out there, we can no longer ignore them, and they become honest to goodness comps.  More importantly, appraisers can no longer ignore foreclosures, and this is really the scary part.  The result, again, is declining prices in a handful of neighborhoods in and around Athens.

There is nothing about the sub-prime subdivision foreclosure that even remotely tempts me to recommend them as short term investment opportunities.  Imagine you did buy one of these homes, getting it for far less than what the home sold for three years earlier.  Now you own it, but other homes continue to be foreclosed on and the prices continue to fall below what you paid.  Now you have negative equity in your investment.  These are the falling knife foreclosures, and they are the ones dominating the market around town.  I don’t think anyone can predict what is going to happen in these neighborhoods in the short or long term.  At this point, I am watching them closely to determine if/when they will be places for the first time homebuyer (or other) to safely invest.

Next Post: The Builder Default Foreclosure.

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