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Health & Fitness

All Distressed Up...

... With No Place To Go

According to RealtyTrac on 3/1/2012 24% of all U.S. residential home sales during the fourth quarter of 2011 were in some stage of foreclosure or bank-owned. The average price of a foreclosure-related sale was 29% below the average price of a non-foreclosure sale. Measured from a year ago, pre-foreclosure sales as a category were up 15%, but REO (bank-owned) sales activity was down 12%.

For the fourth quarter of 2011 there were 907,000 sales, with third party buyers purchasing 204,000 of these. That leaves 703,000 sales to non-third party buyers, who in 100% of the cases are the banks. The dam that was holding back a large number of impending foreclosures has very recently been opened up with the recent "robo signing settlement". As new foreclosures flow in daily, the water level rises as the "all distressed up and no place to go" phenomenon continues. I believe this is likely to lead to an increase in the current trend of more and more bank deals being approved further upstream, in pre-foreclosure. This will likely benefit buyers willing to surf in the short-sale waters, while likely further pressuring sellers.    

Locally, I've been attending some sheriff sale home foreclosure auctions lately. I want to gain a better first hand understanding of what is happening here. By the way, did you know that these auctions are open to the public, are very easy to attend, and that property information including minimum bids is available on public websites? Lake County Sheriff Sale auctions occur in Waukegan every Tuesday and Thursday and Cook County Sheriff Sale auctions are in Chicago just about every day.

Find out what's happening in Winnetka-Glencoewith free, real-time updates from Patch.

I was astounded to learn the details about a recent foreclosure auction transaction involving a property in which I was very familiar with. The home is 2010 tax-assessed at just under $400,000 and it would likely have fetched $500,000 if sold back in 2007. Now, in my opinion, it will be resold in a short time for no less than $325,000. This home was purchased by a third party at foreclosure auction for just under $190,000. This transaction motivated me to get fully plugged in!

So now as I attend selected subsequent auctions, I watch as in a typical day maybe 29 of the 30 homes simply revert to bank-owned (as there are no third party bidders for these). For perhaps 27 of these 29 newly classified REO homes, they could have been bought by any single bidder paying $1 over the minimum bid, which was publicly posted the day before the auction. For perhaps 2 of these 29, I noticed that someone representing the bank's interest was there prepared to possibly bid against third party buyers (though I've yet to see that actually happen). And then for the excitement, yes perhaps 1 of the 30 homes is actually bought by a third party bidder. Other than on that transaction, you can hear a pin drop in a room with up to 10 observers that are dismissed a mere 15 minutes after the auction began.

Find out what's happening in Winnetka-Glencoewith free, real-time updates from Patch.

Please be aware that buying foreclosure properties at auction is an all-cash game (cash due within two days) with back taxes risk, additional lien risk, and condition risk (interior  is unseen, sold as-is, or better yet sold as-will-be) that extends for up to 30 more days before the former homeowner leaves. That's why you cannot just simply include foreclosure comps when valuing non-foreclosure homes.

Relatively few opportunities involve north shore homes, however I have some on my radar. I'm constructing "foreclosure life cycle" short stories to learn (and to show buyer clients) their eventual fate, culminating with the selling price to a third-party buyer. In the meantime, there are some outstanding investor opportunities out there with very few investors out there…     

You don't find any realtors at these auctions. Similar to FSBO's (for sale by owner transactions) there are no commissions to be made when these barrels go over the falls. However I believe strongly that "duties to clients" means that whenever a buyer is considering a home that is (or even is likely to be) entering the pre-foreclosure stage, that buyer is best served when made fully aware of the possibilities that lie downstream. That way their knowledge and their access to additional information and resources truly enables the buyer's interests to be, at all times, primary.

Answers to questions regarding foreclosures and distressed home sales and additional information about north shore home buying and buyer commission rebates can always be obtained by contacting me at Exclusive Buyer Brokers LLC.

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