Radio ads, printed ads, Web sites, news broadcasts and television shows give consumers the message that they can find bargains or even achieve wealth by purchasing bank-owned homes. Media hype is all around and in my market we even have bus tours of foreclosed homes.
Real estate agents are bombarded with information on how to get rich selling foreclosures. Opportunities exist for investors and agents who want to run a high-volume, low-commission business. The homes and the opportunities are not as wonderful as the marketing leads us to believe.
For most Realtors, foreclosures are a growing part of the inventory and we work with them because we have buyers who want to purchase them. The process of buying a home from a bank is different than buying it from a private party — it is slower, and there is more paperwork and it always seems like the bank doesn’t really care if the home gets sold.
Getting these homes inspected is a challenge because often the water has been turned off by the city. The bank has a process and policies, which means it takes longer to get the simple things done that most of us handle on the spot with a phone call.
Large asset management departments handle foreclosures. Employees are in charge of "files," and they have hundreds of them. They get sick, take vacations and don’t answer the phone. These employees play the role of the seller. They don’t get to make decisions; they follow rules and they get paid vacations, and do not receive commissions or bonuses when their "file" closes.
Buyers’ agents make less money on lower-priced foreclosures and end up doing about four times as much work as they would with any other type of sale, mainly because of the extra paperwork and because our buyers will have to make a few offers. About one in every two or three offers a buyer’s agent writes will result in a sale that closes.
Often no effort is made to clean bank-owned homes or remove refuse. I have toured unheated bank-owned homes in sub-zero weather. I once had a client slip and fall on the ice on the kitchen floor. There are holes in the ceilings, missing windows, missing water heaters and no appliances. Snow accumulates on the sidewalks and stairs making it challenging to get to the front door. Sometimes a screwdriver is needed to remove the screws from the porch door to get to the door with the lockbox. Yet members of the media call me and ask if bank-owned homes are "staged" to sell faster. No, they are not staged, and they stay on the market longer than other homes do.
The houses tell me stories. A child’s toy on the kitchen counter, phone numbers for the pediatrician and family dentist on the refrigerator. It hurts to go inside some of them. Clients ask why the homes are in such disrepair and wonder where the children are now. I don’t know where the children are, but I do know that people who are losing their homes don’t make repairs and that some of the homes were owned by investors who never made a repair and tenants were left homeless with little warning. In some cases, the tenants take their frustration out on the walls and the windows as they leave.
Buyers contact me and say they are interested in buying a foreclosure property. No matter what I say to them they don’t get it until they see the home. Some foreclosures are in better shape than others. My clients make offers on them and we wait for weeks to find out if the offer was accepted. After going through that a couple of times, some buyers say no to foreclosures.
It is a myth that bank-owned properties are a bargain — some are, but many are not. The bank-owned homes that are priced very low often need so much work that the cost of the repairs is more than the value of the home after the repairs are done.
It will be interesting to see what my town will look like in a few years. About 25-30 percent of the inventory of available homes is foreclosures and that number is growing. The number of foreclosures locally and nationwide will have a measurable impact on the social fabric of our neighborhoods and on our economy. Some will make money from it, but right now it is not obvious to me who the winners will be. I don’t want to sell these homes, but they make up too much of the market to be ignored.
Teresa Boardman is a broker in St. Paul, Minn., and founder of the St. Paul Real Estate blog. Boardman will speak at Real Estate Connect in San Francisco, July 23-25, 2008. Register today.
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