PART TWO: Distressed Sales and Foreclosure Lists Demystified

The water near the bottom is very murky, and it may not be possible to know we have reached the bottom until we get there.  I believe we have reached a bottom on the Charlotte metropolitan area, and we are actually beginning to see prices move upward slightly again.

Another factor for the potential buyer to consider in this market is interest rates.  The Federal Reserve has intentionally kept interest rates extremely low in an effort to strengthen the recovery of this delicate economy.  The Fed has actually signaled it intends for interest rates to remain low for some time to come.  Most economists expect that interest rates may not begin to rise again for two or even three years, as the economy gradually regains some balance.  This consideration, combined with the notion that we have reached a bottom in home values/prices, render this a very favorable time to buy a home or investment property.

Having said all that, how does a buyer find the “bargains?”  Have you ever noticed the advertisements for “Free Foreclosure Lists” and recommendations of distressed properties?  Of course you have; the Internet and print media are littered with them.  Haven’t you ever wondered where these lists and recommendations come from?  Is there some great secret resource that no one but “insiders” and the publishers of such lists is aware of?  Of course not!

Think about it.  Lenders acquire properties in their REO inventories by foreclosure.  They don’t want these properties; the properties are really just a liability to them.  Banks are not in the business of owning property; they are in the business of lending money.  They want to dispose of these properties as quickly as possible.  Why would they maintain some secret list that only a select few are privy to?   Of course, the answer is they would not.  They want as much exposure as possible because they want these properties sold and off their books– yesterday!  Any Realtor who is a member of the Multiple Listing Service (”MLS”), and is competent enough to use it effectively, can quickly and easily find and prepare a list of properties in the foreclosure process… or REO’s that are currently bank-owned… or short sales.  There is nothing mysterious about it, and anyone who would lead you to believe that they possess some secret list of opportunities no one else knows about is probably not being as forthright with you as they could or should be.   And deception is probably not the best way to begin a relationship with a professional in whom you plan to place your confidence and trust.

 

But finding distressed properties is only a part of the process.  You still need to assess whether a property is really a good value.  This is done with thorough research and analysis-- gathering data concerning recent sales (and sale prices) of comparable homes... pulling up public records information about a property... researching rental values and vacancy rates for investors... etc.  This can get a bit tricky but, as the saying goes, "solid research identifies great opportunities."  And it is in the research where "the rubber really meets the road."  For that, competent assistance is not only a good idea, it is really critical to avoiding a big mistake.

 

Distressed Sales and Foreclosure Lists Demystified - PART ONE

Anyone who doesn’t live on a remote desert island knows that we are experiencing the most challenging economic climate since the Great Depression.  The tailspin our economy has endured over the last several years began with “the housing crisis”– the “mortgage bubble” that was created by predatory lending practices and irresponsible borrowing, combined with years of accelerating appreciation in home values that most people thought would never end.  The net result of this is that an increasing number of homeowners owe more on their homes than the properties are worth– in some cases, substantially more.  By some estimates, more than 25% of all homeowners in the United States fall into this most unenviable position.  As foreclosures continued to accelerate and short sales and REO’s flooded the market of homes for sale, downward pressure on home values will continued.  Until these “distressed properties” are absorbed by the market at a faster pace than they are replaced in bank inventories, the percentage of “underwater” homeowners (those who owe more on their homes than they are worth) will continue to rise.  Most data seem to indicate that we did reach a "bottom" of the market, however, in 2012.

I defined “short sales” and “REO” properties in my February 2012 edition of my blog, and for those who do not really understand the general categories of distressed properties, I would suggest that you review that discussion before you continue.  These terms are tossed around frequently these days by people who do not fully understand their meaning.

The conditions described above created a real “buyers’ market,” and while I believe we reached a “market bottom” in the Charlotte area in 2012 (the point at which prices are as low as they are going) and can be expected to rebound in 2013, if the politicians can avoid sending us over the fiscal cliff and into another recession, that "buyers' market" persists.  Again; the downward pressure on property values is largely caused by a stream of distressed properties into the market.  When that subsides, as it appears to have been doing in late 2012, market conditions will begin to change.  But this will be gradual, as the economy in general remains weak.

 

In Part Two of this article, I will explore the opportunities that remain in 2012 and into 2013.  There are still many, for those to recognize them and are willing to act.   Distressed sales do not have to mean abject suffering, and identifying foreclosure and REO opportunities is more a matter of doing your homework than it is being privy to some "super-secret inside information."  It's really not that complicated, and as my motto goes: "solid research identifies great opportunities."