Great values, hard sales
Distressed properties offer good deals for buyers, but completing the sale can take forever
Want to know how a real-estate agent describes frustration? Ask Steve Kaspryzk.
Not too long ago, Kaspryzk found a cash buyer for a $300,000 house he was listing through his agency, Century 21 Jeffries Lydon in Chico. The catch? They buyer wanted a seven-day escrow. The problem? The house had been through foreclosure.
In a conventional cash sale, a seven-day escrow is relatively easy to obtain. Just clear the title, write the check, and bingo! On an REO, or real-estate-owned property, as foreclosures are called in the trade, seven days is virtually impossible. There was no way Kaspryzk was going to make the sale.
There are several reasons for that. Not the least of them is that banks aren’t normally in the business of selling properties, and they—or the asset management firms that handle their properties—are often understaffed and overworked. “The banks don’t respond,” Kaspryzk complained. “They don’t have anybody to take care of business. The woman I was working with had 400 deals to take care of.”
As a result, it’s become increasingly difficult to sell these properties, even though they represent great value. With interest rates now averaging a low 5.14 percent on 30-year fixed mortgages, “there are some screaming deals out there,” Kaspryzk said. “The banks need to hire some people and get off the dime and close these sales.”
REOs are referred to as “distressed properties,” which means generally that the mortgages are higher than the houses are worth—they’re “upside down,” in the lingo—and the owners either can’t or don’t want to continue paying on them.
There’s another kind of distressed property on the market called a “short sale,” where the seller still owns the house but is in danger of foreclosing. Instead, the seller works out a deal with the lender to sell the house at a below-market-value price. If it works, it’s a better deal for the seller, because it allows him or her to stay in the house during the process and doesn’t do as much damage to his or her credit rating as a foreclosure does.
Short sales are even harder to process than REOs, agents say. Shawn LeBaron, whose Chico firm West Coast Realty Group specializes in listing distressed properties, says there are two reasons for that. One is that, with the seller still in the house, the sale can become emotional. The other is that the agent is dealing with a bank, and banks are bad at selling houses.
Why does all this matter? Mostly because distressed properties, with their lower prices, are pulling down home values throughout the Chico market.
The average median home selling price for the Chico market during the past six months of 2008 was $230,000, reported Linda Almlie, president of the Chico Association of Realtors, but that was excluding REOs and short sales. With them added in, it was $208,250. A year ago, it was $223,500.
The problem isn’t as bad here as in such markets as Sacramento and Stockton, which are flooded with REOs and short sales. Sacramento’s median home price has dropped below $185,000, about half what it was just three years ago.
But it’s definitely having an effect locally. On average during the second half of 2008, there were 445 houses for sale in Chico; of them, 122, or 28 percent, were distressed properties.
“We could stop the decline in values if we could just get these [sales] closed,” Kaspryzk said. There are plenty of buyers, he said, and interest rates are good, but the sales aren’t going through expeditiously. Instead, “they’re stacking up.”
The emergence of large numbers of REOs and short sales in the housing market has led some agents and agencies to specialize in them. The husband-and-wife duo of John and Shelly Anderson, of W. M. Campbell Real Estate, is a good example.
The Andersons moved to Chico five months ago from Orange County, where they specialized in facilitating short sales, and are continuing that work here. As John Anderson explained it, they work directly for the agents on a short sale, handling all the paperwork and bank negotiations for them, in return for a percentage of the commission at the close of escrow.
“You really need to be in the know-how in this short-sale business,” Anderson said during a phone interview. A short sale can take as long as a year. “You’re constantly losing your buyers because the banks are so slow.”
Anderson said he and his wife have long-standing relationships with all the major lending banks and know how to move a sale through the process quickly. “I recently closed one, start to finish, in 30 days,” he said.
Short sales and REOs hurt everyone, he added: “They devalue the street.” With short sales, “it’s a chasing game, trying to sell these homes before they foreclose.”
LeBaron’s West Coast Realty Group lists almost nothing but distressed properties. LeBaron explained that, a few years ago, his company saw the handwriting on the wall and positioned itself to be ready. “Those who said the distressed properties were going to be a tsunami, not a wave, were right,” he said.
By developing good relationships with banks and asset-management firms, LeBaron has attracted a lot of business. “That’s the good news,” he said in a phone interview. “The bad news is we make a little less [on a sale] and we work a little harder.”
Banks, he said, “are the most difficult sellers you can imagine. … There are so many middle men involved,” so many people to sign off on a price and a sale, including asset managers.
“I don’t know a single [asset-management firm] that isn’t overworked and understaffed,” he continued. Frustrated agents who get angry at delays run the risk of seeing their documents fall to the bottom of the pile.
“Our people know how to be exceptionally nice,” LeBaron said. “When we get on the phone with an asset-management company, we try to be as helpful as we can be.”
As troubled as the housing market is, he said, “if you can invest in property, now is a great time to buy. But if you’re looking at a distressed property, you’ve got to have patience.”