Twin Cities Business, Personal Finance, May
2008, By Jeff Dekko
With the housing market in what seems to be
a freefall, is this a time to zero in on the
foreclosure market – either as an investment
opportunity or as a new, upgraded or downsized
homeowner?
Depending on your source, at this writing you’d
have more than 1,300 (forecloserNet.net) to
1,900 (foreclosuredeals.com) homes from which
to choose – and that’s just in Hennepin County.
As a result, this has become a very active
market, with many real estate companies and
agents creating specialty niches just to service
these properties and clients. Barry Tanner,
of Edina Realty, a six-year veteran of the firm,
has been focusing on this market exclusively
for almost three years. In the past year he
and his firm have experienced a doubling in
the number of foreclosures in Edina Realty’s
database of available properties.
“We are seeing a lot more foreclosed properties
being put up for sale,” he says. “But on the
other hand, the past three or four months have
been busy with buyers testing the market for
bargains.”
The foreclosure market is broken primarily
into two segments – properties in foreclosure
and bank-owned properties, with the vast majority
falling into the latter category. While it is
possible to buy a home in foreclosure, the process
can take considerably more time and involves
a lot more risk because of the number of parties
– servicing companies, investors, banks – who
have to sign off on a sale before it’s completed.
On the other hand, bank-owned properties are
just what they are: Homes where the bank has
taken back the property and is eager to get
it off their books.
It’s important to recognize that banks try
to recoup as much of their investment as possible,
so they aren’t inclined to give away a house,
Tanner says. So like other sellers, banks try
to act as rationally as possible.
“Banks differ from one to the next based on
the number of homes they have in foreclosure,
the condition of the property and the amount
of time the house has been on the market,” Tanner
says. “For instance, if a house is in a less
desirable neighborhood or needs a lot of work,
then the bank might be inclined to be more aggressive
on price.”
One clear difference in this market: Foreclosed
homes are sold “as is.” That means a prospective
buyer absolutely needs to hire an independent
inspector to go through the property. “It also
means that someone who is a little bit handy
is at a definite advantage,” Tanner says.
The foreclosure market isn’t a place for a
novice homebuyer, so it’s probably a good idea
to use a real estate agent with some experience
in this space. For example, Tanner explains,
banks from a pure policy perspective differ
in terms of their willingness to negotiate on
price and a level of professional knowledge
in this market not only helps to pinpoint those
situations but to establish the relationships
with the right lenders.
In addition, pricing on foreclosed homes is
highly fluid. With no clear signs that the market
has found a bottom, pricing on homes remains
a moving target, more often than not requiring
some day-to-day expertise with those trends.
John Shaw, manager of Edina Realty’s 6800 sales
office location in Edina, notes that of the
137 properties Barry Tanner closed deals on
in 2007, the average sale price totaled $192,189,
a discount of about three percent from an average
asking price of $198,665. While that doesn’t
seem like much, Shaw also notes that the vast
majority of these sales involved prices that
were already down substantially from peak levels
in 2006, but also included significant seller
concessions. At a minimum, such concessions
involved seller-financed closing costs, which
typically run three percent of the price of
the home.
Both Shaw and Tanner note that foreclosures
are popping up just about everywhere – from
tony suburbs such as Eden Prairie to the near
north side of Minneapolis and the east side
of St. Paul. In addition to the standard variables
concerning price, a key determinant in this
market is the number of foreclosed properties
in a given neighborhood. The more such properties,
the more aggressive the pricing.
Said Shaw: “The inventory of foreclosed properties
has undermined the marketplace and it’s important
to us that we get these homes sold in a way
that will stabilize the market and stabilize
the neighborhoods these homes are in.”
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