Growing Foreclosure Inventory Attracting Bargain Hunters, Report RE/MAX Agents

Aug. 19, 2008 - PRLog -- With data for the second quarter of 2008 showing nationwide foreclosure activity up 121 percent over the levels of a year earlier and more than 250,000 homes across the United States subjected to some kind of foreclosure filing during June, it is no surprise that many people see opportunities in the real estate market.  

“Investor interest in properties owned by banks or other mortgage lenders as a result of foreclosure is the highest I have seen during my career in residential real estate,” said Jim Merrion, a third-generation Realtor® and regional director of RE/MAX Northern Illinois.  “The number of foreclosures in our area is much less than in some places across the nation, such as California, Florida and Nevada, but the level of foreclosure activity here is still quite high by historic standards.”

Illinois ranked 10th among all states in foreclosure activity during the second quarter, according to RealtyTrac, the leading source for data about residential foreclosures in the United States.  The complete RealtyTrac foreclosure data and inventory of bank-owned properties can be accessed at www.illinoisproperty.com.

Lenders now have so many homes in their hands that they are increasingly eager to dispose of foreclosed properties.  More buyers are stepping forward to take advantage of the attractive pricing the lenders offer.

“Some banks are willing to take as much as a 60 percent loss on a home, and in fact we sold one recently in which the bank recovered only 47 percent of its outstanding mortgage debt on the property,” said Kevin Macdonald of RE/MAX Center in Grayslake, Ill.  

“Banks want to move these properties, and once a home has passed through the foreclosure process, buying can be a relatively straightforward process,” he said.  

Macdonald estimates that of 21 foreclosure transactions he has completed in the last year, about 65 percent have involved investors.  

Diane Godwin of RE/MAX On Track in Rock Island, Ill., reported doing about 80 foreclosure sales in the last 18 months, with investors accounting for 80 percent of the purchases.

“Most investors we see rehab the property and resell it, rather than use it to generate rental income,” she said.

Barb Bailey of RE/MAX 2000 in Crete, Ill., estimated that two-thirds of foreclosure buyers are investors.  She said that in some communities where she does business, a foreclosed property will have to pass a city inspection before it can be occupied again.  Similar limitations come with FHA loans.  The FHA requires that the property must be livable and in relatively good repair, she noted.

“Banks generally won’t do any repairs on foreclosed homes they are selling other than a few inexpensive cosmetic items.  It’s the buyer who has to fix any serious problems to pass the inspection,” explained Bailey.  “Investors typically have the resources needed to do that, which gives them an advantage. Those seeking a home to live in often don’t have the necessary cash on hand to finance repairs.”    

She said buyers of foreclosed homes frequently must balance two opposing goals.  

“They want a home in good shape, and they want to get a great deal, but homes with only minor condition problems are going to be priced closer to market value,” she pointed out.  

However, Bailey said that in her experience, foreclosure properties are priced to sell.

“Banks want these homes sold because they are expensive to hold, so they tell their real estate agents to price a home to sell in 30 to 90 days.  Even then, the prices are negotiable,” she said.  “Some lenders are more flexible than others, and the amount of time a home sits on the market also has an impact.”

Linda O’Donnell of RE/MAX Signature in Chicago works extensively with lenders, helping sell the homes they acquire through foreclosure.  She estimates that she is currently representing lenders on about 300 properties, most in Cook County.
She also has been involved in developing a new Web site, www.illinoisforeclosureproperties.com, which explains the process of evaluating and making an offer on a foreclosed property.  It also provides answers to some of the most frequently asked questions.  

“The longer a home is listed for sale, the more the bank is willing to negotiate.  After 150 days, a property is considered aged, and lenders will be very aggressive on the pricing,” said O’Donnell.

Looking at and making an offer on foreclosure property is a not a complicated process,” according to Kevin Macdonald of Grayslake.

“The homes can be inspected, and offers are made using a standard contract form.  However, if a lender likes the offer, the contract will be sent back with a lengthy addendum for the buyer to sign.”

Macdonald explained that many buyers fear that signing such an addendum will mean they can’t inspect the house and turn it down if they don’t like what they find.

“That’s not true,” he said.  “With the contract we use, the buyer still has five days to inspect the home and walk away, but the bank is unlikely to extend the inspection period at the buyer’s request.”

Buyers will put themselves in a stronger position if they have their financing solidly in place at the time they make their offer, advises Nancy Freeman, who is with RE/MAX Realty of Joliet in Joliet, Ill.

“Often buyers expect the bank that is selling the property to provide the financing, but that just isn’t happening now,” she said. “Buyers should plan to obtain financing from another source.”

Even before they make an offer on a foreclosed home, Diane Godwin urges buyers to find out how long a home has been vacant.    

“The longer a foreclosed property stands empty, the more likely it is to have condition issues,” said Godwin.  “One way to get a good estimate is to call the utility company and find out when the prior resident turned off the gas and electricity.”

Macdonald estimates that 35 percent of the foreclosure properties he sees are in pretty good condition, while another 5 percent are in excellent shape.  

“Condition is really the biggest issue with these properties,” said Linda O’Donnell.  “Whether they are an investor or a would-be resident of the home, buyers need to know what they are getting into as far as cost goes.  The financing is generally available, either with an FHA loan or a rehab loan.  The other key is to have an experienced attorney review all the documents that come from the bank so that you know what you are signing.”

Buyers also would be well served to understand the relationship between the potential resale value of the home, once it is fixed up, and the total investment required to buy and rehab the property.  

“That is especially important for investors,” said Diane Godwin, “but it’s also true for others.  It can even make sense to have an appraiser evaluate the property so you know what has to be done to it to maximize its market value.”

RE/MAX is the leader in Northern Illinois real estate sales and has been number one in residential sales in the Chicago metropolitan area since 1989.  In 2007, offices affiliated with RE/MAX Northern Illinois, a privately held RE/MAX regional franchisor, closed more than $11.4 billion in sales.

The RE/MAX network in northern Illinois consists of 3,600 associates and 155 individually owned and operated offices providing residential, relocation and commercial real estate services throughout the northern one-third of Illinois.  Its Web site, www.illinoisproperty.com, receives more than 1 million unique visitors each month. The Northern Illinois region is part of RE/MAX International, a global real estate network with 7,000 independently owned offices and 100,000 member sales associates in 65 countries.