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I completely agree that real estate is greatly influenced by local factors. I also believe that most of the important issues of real estate can be boiled down to basic principles that are applicable in broad ways to the entire country. Does this sound to be contradictory? It is not to me. Let me illustrate with some examples.
We can start with development patterns. Contrary to what you believe the Chicago region includes MANY area that are just like Union County NC in terms of having had a great deal of new development. Entire towns have sprung up well outside the traditional range of suburban development. The features that were ladled on to the those homes and subdivisions in far flung areas seemed geared toward people who had unlimited funds. Developers were wildly optimistic in the pricing that was sustainable. As things crashed entire subdivisions have "ghost roads" with incomplete houses. There may have been deliberate fraud or perhaps just foolish haste that lead to this. In either case, when the income base to support enormously expensive home was clearly insufficient to inevitable result has lead us to where we are now -- an over supply of homes that are leaving lots of red ink on the books of lenders. This is a problem that does range pretty much across the whole nation!
There have been MANY boom-bust cycle in real estate. As things are expanding the foolishly frenzied home owners throw money at developers that cannot build home fast enough. Once things collapse the suckers are left with a mess and the vultures pick up the scraps for pennies.
While it has been know to happen that a massive subdivision is planned out with homes of over two million dollars going completely belly-up save for one or two terribly unlucky folks that have taken delivery, the more common scenario is for developers to retrench / scale back and the 'upscale' community to be finished out with decidedly "downscale" homes. I frankly do not feel bad for the folks in such situations, as I have seen this pattern repeat over and over going back to 1970s when my dad was involved in the development, and it has made me appreciate value of mature communities that follow a more traditional, slow paced development.
Believe me I can fully understand the how sometimes there are "holes" in most any development, as my mom still lives in a development where my dad was active, and there is still a handful of "green lots" that are available some 40 years out!!!
The general principal that I thus have arrived at regarding new developments is simple: there is a far greater risk of declining values in a large, quickly marketed development NOT being completed in the way originally sold / envisioned than in more traditional neighborhood where values have slowly climbed.
When it comes to local factors I also fully agree that the specific qualities that come along with any individual home can be make or break kinds of things. In the Chicago region a home with a carport is a huge negative, whereas in the Southwest of Florida this is perfectly acceptable. My sister-in-law is a real estate agent in San Diego. There an "Ocean View" can and literally tens in not hundreds of thousands of dollars to a home. My sister lives in the Lincoln Square neighborhood inside the City of Chicago, a lot that is just an additional 10 to 12 wider that the standard can increase the value of a home from perhaps $250k to $500k. Lenders that do not hire folks with local expertise can thus make some very incorrect assumptions about what drives local buyers. It takes time to get the massive number of homes evaluated by folks with local knowledge.
I fully understand that banks are not dealing with their non-performing assets in a way that is consistent. In some areas they are undoubtedly bogged down by the shear volume of bad loans that they are stuck with. I have direct experience in dealing with both the low level front line folks as well as some experience with folks whose roles are slightly more strategic. They too know that the general principle they are dealing with are broadly applicable. Where it makes senses the lenders can try to reassemble a subdivision that had lots sold to numerous parties and get it back under the control of one developer that is capable of maximizing the return to the lender. That takes time. In other cases the lender has been tipped off that borrowers have committed crimes and they do pursue legal and financial remedies, again a time consuming process. In still other cases the lenders does have direct knowledge of shifts in the local employment situation, as you allude some of the layoff in the region may have been to the very bank employees that thought they'd all get big bonuses for the foreseeable future. Sadly that has not worked out, and the miraculous growth of banking in the southeast now seems like a particularly cruel lesson in getting something for nothing...
SO where does that leave mmoore? Well, it sounds like they have some experience in making offers on foreclosures, and it does not sound like they've been accepted. Generally when an offer in real estate is not accepted it is either due to an unacceptable price or unacceptable terms, sometimes both. Since I fully agree that is foolish to do other than try "to get the best deal possible" I would suggest that it is important to understand that all sellers, even those with huge backlogs of unsold / unsellable properties also want the "best deal possible" and the terms / price they want are directly in conflict with those likely to be offered. In the case of a pretty much any seller there is an assumption that more money is a always better than less, and less contingencies are better. For the buyer the opposite are true -- less money is always better and the greater assurances that home is in superior condition in every way is preferred. The trick is for each side to understand the "is possible" part. To get to that meeting of the minds each side has to give up something that is especially desired by the other. So far it sounds like you've tried to make cash offers, but were they truly without contingencies? I would suggest that is truly the important thing to the seller, of course even an offer with no contingencies what so ever will accepted if it is for an unsupportable low price. have cash but are unwilling / unable to accept a "pig in a poke" and not get an inspection the lender probably puts your offers in the ash can. In some cases the very asking for any kind of concession / contingency is enought for the lender to reject the offer. Consider too that when NOTHING is selling there is no real market established. If the pool of comparable closed sales is so small as to be all but nonexistant then naturally the seller will be unwilling to accept an offer for fear that they are agreeing to sell too low. It is easy to talk yourself into believing "sellers with this much unsold inventory are better off selling for some low amount than not selling at all" however the empirical evidence of your unaccepted offer(s) would seem to be strong evidence that this is not true...
I truly do wish you success in your quest to purchase a home, but I fear the you may not be all that happy to get what you wish for...
Last edited by chet everett; 03-04-2010 at 09:31 PM..
I completely agree that real estate is greatly influenced by local factors. I also believe that most of the important issues of real estate can be boiled down to basic principles that are applicable in broad ways to the entire country. Does this sound to be contradictory? It is not to me. Let me illustrate with some examples.
We can start with development patterns. Contrary to what you believe the Chicago region includes MANY area that are just like Union County NC in terms of having had a great deal of new development. Entire towns have sprung up well outside the traditional range of suburban development. The features that were ladled on to the those homes and subdivisions in far flung areas seemed geared toward people who had unlimited funds. Developers were wildly optimistic in the pricing that was sustainable. As things crashed entire subdivisions have "ghost roads" with incomplete houses. There may have been deliberate fraud or perhaps just foolish haste that lead to this. In either case, when the income base to support enormously expensive home was clearly insufficient to inevitable result has lead us to where we are now -- an over supply of homes that are leaving lots of red ink on the books of lenders. This is a problem that does range pretty much across the whole nation!
There have been MANY boom-bust cycle in real estate. As things are expanding the foolishly frenzied home owners throw money at developers that cannot build home fast enough. Once things collapse the suckers are left with a mess and the vultures pick up the scraps for pennies.
While it has been know to happen that a massive subdivision is planned out with homes of over two million dollars going completely belly-up save for one or two terribly unlucky folks that have taken delivery, the more common scenario is for developers to retrench / scale back and the 'upscale' community to be finished out with decidedly "downscale" homes. I frankly do not feel bad for the folks in such situations, as I have seen this pattern repeat over and over going back to 1970s when my dad was involved in the development, and it has made me appreciate value of mature communities that follow a more traditional, slow paced development.
Believe me I can fully understand the how sometimes there are "holes" in most any development, as my mom still lives in a development where my dad was active, and there is still a handful of "green lots" that are available some 40 years out!!!
The general principal that I thus have arrived at regarding new developments is simple: there is a far greater risk of declining values in a large, quickly marketed development NOT being completed in the way originally sold / envisioned than in more traditional neighborhood where values have slowly climbed.
When it comes to local factors I also fully agree that the specific qualities that come along with any individual home can be make or break kinds of things. In the Chicago region a home with a carport is a huge negative, whereas in the Southwest of Florida this is perfectly acceptable. My sister-in-law is a real estate agent in San Diego. There an "Ocean View" can and literally tens in not hundreds of thousands of dollars to a home. My sister lives in the Lincoln Square neighborhood inside the City of Chicago, a lot that is just an additional 10 to 12 wider that the standard can increase the value of a home from perhaps $250k to $500k. Lenders that do not hire folks with local expertise can thus make some very incorrect assumptions about what drives local buyers. It takes time to get the massive number of homes evaluated by folks with local knowledge.
I fully understand that banks are not dealing with their non-performing assets in a way that is consistent. In some areas they are undoubtedly bogged down by the shear volume of bad loans that they are stuck with. I have direct experience in dealing with both the low level front line folks as well as some experience with folks whose roles are slightly more strategic. They too know that the general principle they are dealing with are broadly applicable. Where it makes senses the lenders can try to reassemble a subdivision that had lots sold to numerous parties and get it back under the control of one developer that is capable of maximizing the return to the lender. That takes time. In other cases the lender has been tipped off that borrowers have committed crimes and they do pursue legal and financial remedies, again a time consuming process. In still other cases the lenders does have direct knowledge of shifts in the local employment situation, as you allude some of the layoff in the region may have been to the very bank employees that thought they'd all get big bonuses for the foreseeable future. Sadly that has not worked out, and the miraculous growth of banking in the southeast now seems like a particularly cruel lesson in getting something for nothing...
SO where does that leave mmoore? Well, it sounds like they have some experience in making offers on foreclosures, and it does not sound like they've been accepted. Generally when an offer in real estate is not accepted it is either due to an unacceptable price or unacceptable terms, sometimes both. Since I fully agree that is foolish to do other than try "to get the best deal possible" I would suggest that it is important to understand that all sellers, even those with huge backlogs of unsold / unsellable properties also want the "best deal possible" and the terms / price they want are directly in conflict with those likely to be offered. In the case of a pretty much any seller there is an assumption that more money is a always better than less, and less contingencies are better. For the buyer the opposite are true -- less money is always better and the greater assurances that home is in superior condition in every way is preferred. The trick is for each side to understand the "is possible" part. To get to that meeting of the minds each side has to give up something that is especially desired by the other. So far it sounds like you've tried to make cash offers, but were they truly without contingencies? I would suggest that is truly the important thing to the seller, of course even an offer with no contingencies what so ever will accepted if it is for an unsupportable low price. have cash but are unwilling / unable to accept a "pig in a poke" and not get an inspection the lender probably puts your offers in the ash can. In some cases the very asking for any kind of as to be all but nonexistant then natuconcession / contingency is enought for the lender to reject the offer. Consider too that when NOTHING is selling there is no real market established. If the pool of comparable closed sales is so small rally the seller will be unwilling to accept an offer for fear that they are agreeing to sell too low. It is easy to talk yourself into believing "sellers with this much unsold inventory are better off selling for some low amount than not selling at all" however the empirical evidence of your unaccepted offer(s) would seem to be strong evidence that this is not true...
I truly do wish you success in your quest to purchase a home, but I fear the you may not be all that happy to get what you wish for...
Comments in reply to your above post:
1. Actually this would be my first offer on a "foreclosed property" or any other kind of property since the down turn in this housing economy. The house that I am interested in isn't even on the market yet. I do have plenty of experience in buying homes in the past and know what I am doing when it comes to regular sales, and I have had great success. When it comes to the foreclosure sales, I do not have much experience, hence the reason that I came on this forum asking for advice.
2. The pool of comparables is not small in the area that I am interested in. There are quite of bit of sales that will be used as comparables that are all foreclosures and short sales. That is all that is selling for the last year and half.
3. While there have been other down turns in the housing market, I think everyone can agree we have NEVER seen anything like we have been seeing these last 2 years with real estate. It almost completely crashed the financial system. Without the governmental bail out ( TARP ) for the banks who knows what might have happened.
4. You sure do assume a lot Where have I said that I have made multiple offers on different houses and all of them have been turned down......empirical evidence? Where in any of my posts have I said that I am trying to 'low ball" or try the "pig in a poke" with the banks? All that I have mentioned was that I was going to use recent comparable sales when making an offer on the house, and that I wanted to get the best deal possible. I asked if there was any advantage of someone making an offer with all cash versus the conventional loan route.
"fear that you might not be all happy to get what you wish for" ------ I wish we could place a friendly wager.
There are several houses that I know of in my neck of the woods (suburban Chicago) that are in that price range that are REO. The lenders (including BofA) are in possession of them due to fully executed foreclosure (done by the mass foreclosure law firms). The properties are in good condition and the lender has not listed them with MLS for months, as the almost certainly understand that doing so would not result in a worthwhile sale. This is the "shadow inventory" that probably will not go to MLS until the lenders see some solid evidence of demand coming back into this price range... None of the local real estate agents expects the lender to make particularly large concessions on price, regardless of terms offered by potential buyer, cash or otherwise.
The lenders might be disorganized, and they certainly have some less than talented folks (that are probably insanely over worked...) running the frontlines of asset disposal but they are not suicidal and they fully understand that any reckless price cutting will be widely reported and lead to more troubled home owners questioning why the heck they are dutifully paying large mortgages on upside down properties... No reason to go knocking over dominoes!
Wow, what a fantastic bit of analysis...props way up!
But this is what is truly ridiculous...those price ranges are not coming back for a very, VERY long time (as in, decades), considering our current economic climate. The only way those price ranges are coming back would be if the dollar's value would fall in line with the amount the market has been flooded with it.
I don't think any one really knows how long it will be until some prices rebound. I have seen very mixed signs of prices recovering . There appears to be some actual NEW CONSTRUCTION which strikes me as incredibly risky, but I suppose if some one truly has the cash needed for building then it is their money and they do with it what they wish.
I have seen an upsurge in vacant homes explicitly be listed as "for rent", I sign I would associate with a seller anticipating an extended period until prices recover.
The thing is that there is SOME detachment of prices to employment stats and other indicators, but I agree that general "price advances" cannot resume in a unhealthy market. Perhaps the sellers or high end properties are operating under the assumption that just as there still were high end jewelers and luxury cars that managed to stay in business through the worst of economic conditions so will high end properties eventually find buyers. These are NOT tract homes I am talking about, but houses that were built one at a time and sellers probably hope they'll sell that way too...
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Where have I said that I have made multiple offers on different houses and all of them have been turned down......empirical evidence? Where in any of my posts have I said that I am trying to 'low ball" or try the "pig in a poke" with the banks? All that I have mentioned was that I was going to use recent comparable sales when making an offer on the house, and that I wanted to get the best deal possible. I asked if there was any advantage of someone making an offer with all cash versus the conventional loan route. 
