The flip sidePosted On: June 2008
Agents and brokers are holding the foreclosure door wide open for buyers looking for a bargain.
June 22, 2008
Two years ago, Jason Pietrucha read the foreclosure writing on the wall.
The mortgage broker saw California's growing default rate and prepared for the home-loan tsunami to hit Illinois.
Switching to real estate sales, Pietrucha deals almost exclusively in properties in various stages of mortgage distress. He's one of a growing number of agents and others who have adapted to the recast realities of real estate.
It's playing out in many ways. Brokerages have rolled out foreclosure-training courses for agents and are listing foreclosures on their Web sites. Property-management companies have expanded their services to watch over the widening pool of vacant homes. Auctioneers sell hundreds of bank-owned homes in an afternoon. There are even do-it-yourself programs for troubled homeowners trying to stall the inevitable.
"We're all trying to adjust to this new world," said Tim Soper, an agent with Re/Max Pinnacle in Shorewood, one of a handful of Chicago-area entrepreneurs who organize bus tours of homes in or near foreclosure. The venture offers a rolling seminar on the foreclosure process while visiting the properties.
Soper estimates one-third of his business has shifted to foreclosures.
"You start looking and you say, 'Wow, the sheer volume,' " said Soper.
That isn't expected to change any time soon. Real estate data firm First American Core Logic said the number of bank-owned properties nationwide rose to 660,000 in April from 493,000 in January and 231,000 in January 2007.
In March, the company said, the number of investor and lender-owned homes in the Chicago region had similarly doubled, to more than 40,000, or 2.5 percent of housing here.
Terry Semmens, who heads the Chicago office of ZipRealty Inc., said his company, like many others, has been training its agents in the specifics of foreclosure sales in response to demand from consumers. He, too, estimates that one in three offers his firm handles is foreclosure related.
Though deals, indeed, can be had, they are neither as simple nor as cheap as many buyers expect, he said. Time-consuming and bureaucratic, foreclosures are a world apart from traditional home sales, he said.
"They're not giving them away," said Pietrucha, now an agent in Koenig & Strey GMAC's Glenview office. "People see a list price [on a bank-owned home] and they think they can go 20 or 30 percent below that, and that's just not the case."
By the time they're listed, the prices are less than those of comparable homes on the market, he said.
"In general, you're getting them at 15 to 20 percent below market value," Pietrucha said.
Jason and Nicole Finkelstein bought a foreclosed townhouse in Minooka that they say will cost them $40,000 less than comparable units. They submitted an offer for the bank's full asking price and waited for a response. And waited.
A week into their wait in early June, they'd heard nothing. "I have been told that another five days or a week from now, I could still be waiting," Jason said. The Finkelsteins waited until last week, when they learned they got the house. Closing is still a few weeks off.
They have fared better than most in their situation, with a waiting period close to that of a traditional transaction. Longer lags aren't unusual, rooted partly in bank bureaucracy, partly in the numbers of sales lenders are handling, agents said.
"Banks and real estate brokerages were ill-equipped to handle the flood of business" when the foreclosure tide turned late in 2006 and into 2007, said Steve Murray, a real-estate industry consultant in Littleton, Colo.
Murray said it's been hard for brokerages to provide foreclosure training because of cost-cutting necessitated by the market shift. But they are getting a grip on such sales, he and others said.
And there's the intangibles: the reticence of buyers who don't want to appear to be benefiting from another's bad fortune. Joe Halwax, a Chicagoan whose family has been looking at properties in Glenview, said he liked one house in foreclosure that was too expensive. He spoke with the owners.
"Now that we've met them, we feel horrible for them," he said.
"But a lot of these foreclosures are builders who were throwing up homes when the market was hot and speculators who had no business getting into the market," he said.
Growing numbers of lenders are unloading their inventory via auction. In regions hard-hit by the downturn, it's routine for hundreds of foreclosures to be auctioned at a time. By the end of 2007, 60 percent of mortgage servicers (companies that administer loans for lenders) had used auctions to liquidate inventories, according to Fitch Ratings, a bond analyst.
Auxiliary services in the industry are expanding to meet the demand.
Services that sell listings of foreclosure filings are proliferating—with varying results, said Jeff Metcalf, CEO of Record Information Services in Kaneville.
"Now you hear ads on the radio saying, 'Call this toll-free number,' " said Metcalf, who founded the company, which provides sales price data to the Chicago Tribune, in 1983. "A lot of these companies can't keep up, and they're selling dated information."
The industry is also offering the listings directly. Re/Max Northern Illinois, for example, recently added foreclosure listings from RealtyTrac, a data provider, on the property-search feature of its Web site, Illinoisproperty.com.
Posted On: June 2008
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