I’ve got good news and bad news - which would you prefer first?
Well - everyone wants to hear good new - so here it is: Buyers are coming back to the market - at least I have experienced a marked improvement, both in terms of showing my listings are well as my own buyers calling me up and wanting to see property.
Needless to say, the past few months I feel as if I’ve been unemployed - now I can claim I am underemployed
Ok - the not so good news? Everyone wants a deal. Tom - that’s good news, not bad news! Well - the “deals” that I’ve come across aren’t really “deals”.
I’ve been showing alot of REOs - bank owned property - these are the real foreclosures. It is important to draw a distinction between properties in foreclosure and REOs. Not all properties in foreclosure end up as REOs - in fact a good majority of properties do not end up as REOs.
I completely get the concept of a good deal, however, I can give you a few examples why the REO market is not necessarily the best route for bargains:
2124 W Rice - 3 Bedroom, 2 bath new construction unit in a rowhouse-concept - 3 simplex units with a commercial space on the first floor. This building is included in a number of units just like it along Rice St - great area in East Village.
When originally offered by the developer, this property was listed at $479,000. Currently as an REO it is offered at $287,900.
WOW! What a deal! Well - no. The property is in need of significant repairs - no surprise for an REO - as well as it is clear that the unit was not completed during the construction phase. For starters, this property would not pass inspection due to the fact of exposed ceiling joints above the outside balcony. Further investigation found that the city department of Building and Permits does not have permits on record. Guess who’s responsible for creating the correct audit trail for the city?
*Jeopardy theme music* okay, you have 5 seconds.
*DING!*
The correct answer is, “Who is the buyer?”
CORRECT!
How much did you wager? Well! That’s the $64,000 question - or maybe even more - you have no idea how much you just wagered. Now - if you’re an experienced investor, savvy to the wayward ways of Chicago’s Department of Building and Permits - you would run - quickly - to another available property.
Ok - so - you’re willing to tackle the permit issue with the city - great. You’ve weighed in on the risk, reward thing and decided to roll the dice.
Ok - so - aside from the physical improvements required, you find out that the building has no condo association, no reserves and are uncertain as to whether or not the building is insured. Hmmm - no condo docs or association?
Um - no loan - no way, no how.
The physical improvements would have raised a flag with the appraiser and the underwriter, but there are construction loans - so it may have been possible to get financing, but only with a substantial downpayment. The fact that no association exists, no reserves and possibly no insurance - while banks have made bad decisions, I think you’ve gotten the sense with the current credit meltdown, you’re unlikely to get a mortgage.
The question remains - is this REO a good deal? For the average home buyer looking for a good deal? My take - no. By the time you work thru the issues related to the permits, required repairs to bring the property up to code, cost of insuring the building, forming an association and building a reserve, you may be better off with a property that has everything in place.
To an experienced investor - the trade-off becomes carrying costs and risk - the required repairs could cost you $100,000. The $479,000 didn’t sell - the correct price in today’s market - probably closer to $379,000. Is this a deal? Again, my take - no.
Many sellers in today’s market have gotten the message - price realistically or you simply won’t sell. I did a market analysis for a client on a property that was priced based on sales in 2004 and 2005 - not the recent sale in 2006 and 2007. The current price is substantially less than recent comps - I think that seller gets it.
Those are the deals worth going after.
Tags: Foreclosure Search, Real Estate Chicago, REO, Ukrainian Village