Detroit's fight against vacant land gets tougher Tax foreclosures skyrocket BY JOHN GALLAGHER FREE PRESS BUSINESS WRITER In case anyone doubted it, Detroit's vacant land problem, already bad, is getting worse in a hurry. The number of tax-delinquent properties listed for sale in Wayne County's annual auction beginning Oct. 19 has swelled to almost 9,000 this year, from about 2,000 properties in 2007, said Terrance Keith, Wayne County's deputy treasurer. The vast majority of those parcels are vacant lots in Detroit, he said, and most are unlikely to find buyers at the annual tax auction. Detroit already suffers more vacancy than any city in the nation, except perhaps post-Katrina New Orleans, urban planners and academic researchers said. An estimated 40 square miles of the city's 139 square miles of land are now vacant, an amount of land roughly the size of San Francisco or Boston. The extent of the tax foreclosures underscores the efforts by Mayor Dave Bing, planners and activists in and out of city government to find new purposes for the land, including urban agriculture and greenways.  The foreclosure crisis has added significantly to the problem. Detroit's Office of Foreclosure Prevention said last week that 17.3% of Detroit's residences had gone through foreclosure through the end of 2008, with many more added this year. Some fear tax auctions only add to problem of abandoned property At the corner of Freud and Dickerson on Detroit's east side, a parcel of vacant land stretches seemingly for blocks without a single house or other structure on it. Five lots on that stretch will go up for auction in mid-October as part of Wayne County's annual sale of properties seized because of unpaid property taxes. The lots are small, 30 to 40 feet wide by 100 feet deep, and in a better real estate market, they might fetch a buyer. But there's a good chance they won't sell at all, because most properties offered at the county's annual land sale don't, said Terrance Keith, Wayne County's deputy treasurer. And that means those lots might stay in the county's inventory or revert to the City of Detroit, which already owns tens of thousands of unwanted parcels. Huge problem is growing The county's annual auction, which is to be held this year beginning Oct. 19, provides a look at Detroit's vacant-land problem. That problem is huge, and it's growing. The latest U.S. Postal Service data show that as of June, about 17% of Detroit's addresses appeared to be vacant. That didn't count thousands of other vacant lots to which the postal service no longer tries to deliver mail. Two years ago, during the 2007 auction, the county listed about 2,000 tax-delinquent properties for sale, Keith said. This year, following the collapse of the real estate market and the nation's economy, almost 9,000 properties are to go on the block during the auction, which can last up to three days. The vast majority of those parcels are vacant lots in Detroit, Keith said, and if history is a guide, most of those won't sell. The problem of what to do with tax-foreclosed property is a question contained within the larger debate about Detroit's growing vacancy. Planners and activists have suggested many solutions, from turning the land into urban farms to somehow repopulating it with the help of billions of dollars in federal aid, if such aid ever becomes available. In the meantime, many critics said that using a tax-foreclosure auction to dispose of the land probably makes the vacancy problem worse, not better. Speculators take advantage Margaret Dewar, a professor of urban planning at the University of Michigan, said last week that the most common buyers at tax auctions are speculators, based either locally or around the country. They hope to buy cheap land and flip the properties for a quick profit. She contended that more deserving groups that should get control of the land, like neighborhood community nonprofits or homeowners who want to buy the lot next to them, often lose out to the speculators. "Tax auctions are a very bad mechanism for taking any control of what your city becomes," Dewar said. Dan Kildee, the treasurer of Genesee County, where Flint is located, also dislikes the auction process. Kildee chairs the Genesee County Land Bank and arranges for sales of tax-delinquent land on a negotiated, parcel-by-parcel basis, cutting out speculators. "It's pretty unusual that the auction produces a responsible investor," Kildee said. In a notable example of what can happen, two local speculators bought a parking lot belonging to the Perfecting Church on Detroit's east side at the county's 2003 tax auction without the knowledge of the church, which didn't realize its lot was being auctioned off in error. The buyers offered to sell the lot back to Perfecting Church. The church sued instead, but it had to go all the way to the Michigan Supreme Court before getting its property back. How the process works Keith agreed that that the auction method of disposing of surplus property isn't the best. It just happens to be the one outlined under state law, and one that almost all counties in Michigan use. Keith said he would like to see changes in state law making it easier for property owners to avoid foreclosure and hang on to their properties, so the parcels don't wind up in the annual auction. In the meantime, the county will carry on with the annual sale. There are actually two auction sales each year. The first, in mid-September, requires buyers to bid at least the amount of delinquent taxes due on a property, which can run into many thousands of dollars. Few people buy at that sale, waiting for the follow-up auction in mid-October, when the minimum bid drops to $500 per parcel. Keith used the example of a vacant building with $15,000 in delinquent taxes due on it. "In a hot economy, the $15,000 would be a bargain," he said. "In the economy that we have now, that's an outrageous price, a significantly overstated value, given the market conditions." Other counties also auction properties seized for delinquent property taxes, but no county has the volume that Wayne County does because of the Detroit parcels. Oakland County, for example, will auction tax-delinquent property beginning Oct. 13, but the county treasurer's Web site lists only a few hundred parcels for sale. Additional Facts Facing foreclosure? Homeowners who need help to keep their homes out of foreclosure can visit the Web site of Detroit's nonprofit Office of Foreclosure Prevention and Response at www.foreclosuredetroit.org.

 

Florida Real Estate Shows Its Resilience in residential

Abandoned condo developments in once-booming Miami epitomize the quagmire gripping the Florida real estate market. Housing values are projected to fall drastically across the state — on the surface offering attractive opportunities to value minded investors — but when will the carnage end? Even tourist mecca Orlando is swamped with vacant properties as the numbers of new buyers attracted to the market by federal incentives can't stem the tide of foreclosures, while the rise in residential sales still fuels hopes of sunnier times ahead.

The backlog of foreclosed homes hitting the market is slowing a housing recovery in Florida as the state battles an economy with one of the highest unemployment rates in the country. However, the Sunshine State is still proving its resilience with improving home sales for more than a year and is starting to show signs of stabilization.

Like most battered areas of the country, Florida has been aided by the government's first time home buyers tax credit, but an enormous grey area has grown between any sort of rebound and weakened markets. Housing sales are up but prices keep declining.

In Miami, where more new condos and homes were built in five years during the boom than in the past 30, the market is seeing signs of improvement as bankers take over huge condo developments abandoned by developers. More than two dozen have been left to the elements.

Auction companies are having a hey-day in South Florida, which has become a bargain hunter's paradise even as job losses mount. With mortgages that are harder to find, the Miami market still fights the paralysis of more deflation. Miami is forecast to deflate an average of 24.2% in 2009.

Being on the road to recovery and stabilizing are two different things. Stabilization is the first step in the process, and it appears any sort of real stabilization will take at least a number of more months in Palm Beach, where the local economy is suffering a double blow.

The housing market hit the skids and then Ponzi scheme King Bernie Madoff admitted to ripping-off billions of dollars from investors. At least 1,200 of his victims make their homes in Palm Beach. The market has been flooded with victims' homes as foreclosures climb. The lower prices are translating to more home sales, but the double whammy is having a devastating impact on the market. Palm Beach housing values are forecast to deflate 15.1% on average for the year.

Local Florida Housing Markets at a Glance

City	Forecast
Miami	-24.2%
Naples	-14.2%
Palm Beach	-15.1%
Fort Lauderdale	-11.9%
Orlando	-16.7%
Jacksonville	-13.6%
Tallahassee	-11.8%
Tampa	-13.6%

In Naples the market is showing more signs of stabilizing with rising sales as the glut of inventory shrinks. As one of the state's higher end markets, Naples has known the ups and downs of real estate cycles, and is forecast to deflate 14.2% in 2009 on the average home.

In Fort Lauderdale new condo developers are selling off their inventories of unsold properties just about anyway they can. The bottom of the market may be close in Fort Lauderdale. But it's hard to tell how long it will take to work through the inventory. Housing Predictor forecasts average deflation on homes and condos of 11.9% for the year.

Tampa area home sales are rising as the inventory of foreclosures is being absorbed by new owners and those seeking a vacation home in the Florida sunshine. But the pattern of sales has been erratic with some months recording higher sales only to decline the next.

The $8,000 federal tax credit for first time buyers is helping to move homes in Tampa. The majority of sales are foreclosed properties that bankers are slashing the prices on to move the inventory before more foreclosures hit the marketplace. Tampa is forecast to deflate 13.6% on average home values in 2009.

In Jacksonville the toll of overly aggressive banking practices is triggering an increasing onslaught of foreclosures as the market is battered by fallout from the financial crisis. Business closings and bankruptcies are hurting the local economy. Aided by a rise in sales, Jacksonville is forecast to deflate 13.6% in average housing values in 2009.

The pipeline of foreclosures is having a devastating impact on Orlando, recognized for being the top vacation destination in the nation. The glut of inventory is forcing prices southward as thousands of properties sit vacant, many of which are not even yet for sale. A balance between the forces of supply and demand will eventually be reached, but not before values decline more in Orlando. Housing values are forecast to suffer 16.7% in average deflation for the year.

In Tallahassee home sales are also improving as the state capitol makes inroads towards stabilizing. However, it's clear that any sort of additional government aid won't help many of the homeowners who are losing their homes in the foreclosure epidemic. The mortgage meltdown has made its impact in Tallahassee with home values forecast to fall another 11.8% on average in 2009.

 

Real Estate Auctions – The New Land Rush

Sep.22, 2009

On a sunny afternoon in Florida, an energetic crowd gathers on the lawn of a high end luxury estate. A loud and eager banter between an auctioneer, a group of bidders and bidder assistants fills the air. For several minutes the auctioneer asks for the next highest bid and the bidders respond. Suddenly the bidders grow silent. The high bidder holds his breath in anticipation of winning the auction. The auctioneer calls for one more bid. In a loud clear voice which rolls over the audience he says, Fair warning, last chance the auctioneer pauses, SOLD! And in less than 10 minutes another multimillion dollar estate has changed owners.

Successful real estate auctions like the one above are happening all over North America and the Caribbean. Recently real estate auctions have been on the rise, the increase in popularity is partly driven by growing inventories and fading buyer confidence. Properties that were selling in weeks using traditional methods are now languishing on the market unable to attract buyers even as sellers lower prices. Many say the real estate boom is over but savvy buyers and sellers are profiting from real estate auctions.

Real Estate Auctions Work in Up or Down Markets.

Regardless of trends or market cycles, real estate auctions provide an open and transparent process for buyers and sellers. Properly conducted real estate auctions attract ready and willing buyers and motivate them to act now.

The auction method removes the wait and see attitude which serves to further depress real estate values. Buyers are always concerned about overpaying. Buyers gain confidence with their purchases at real estate auctions because they can see what others are willing to pay.

When market demand is high and inventories low, real estate auctions can deliver selling prices well above what a willing seller would have accepted in a negotiated private treaty sale. In good selling climates many property owners using traditional real estate methods; negotiating with one buyer at a time, leave thousands of dollars of equity on the table. During up markets real estate auctions are the best way to establish top market price.

Evaluating Your Real Estate for Auction

Not every property or seller for that matter makes a good candidate for auction. First of all sellers must be ready to sell now and for the current market value. Also a real estate auction will not fix problems caused by a downturn in market value of your property, if you owe more than a willing buyer will pay, be prepared to come to closing with your check book.

Properties that do well in real estate auctions have a high uniqueness factor. Ask your self, What makes my property different from most others? Maybe you own a resort property or high end luxury home, commercial properties and land do very well at auction. Real estate auctions thrive on uniqueness. If your property is like everyone elses, the best thing you can do is offer the most competitive price.

Most importantly sellers must be reasonable about setting a minimum bid. A seller must look at the lowest, most current comps and price below that to generate the interest and urgency necessary for a successful real estate auction. Once the auction begins and qualified bidders start competing against one another you can watch the selling price increase.

Locate a Qualified Real Estate Auctioneer

Start by checking with the National Auctioneers Association, the best real estate auctioneers belong to this organization. These real estate auctioneers are well trained and adhere to a standard of practice and a code of ethics. Many attend the annual International Auctioneers Conference where the latest techniques and innovations in the real estate auction industry are presented.

Find out if the company you are interviewing is a full time real estate auction firm. Many real estate agents are getting auction licenses yet have no experience with the auction method of marketing. Conducting a successful real estate auction has differences from traditional real estate sales. Go with a real estate auction pro.

You're probably better of with an auction house that specializes in real estate auctions. There are many qualified auctioneers who have generations of experience selling personal property; furniture, dishes, lawn equipment and the occasional rare painting. Selling real estate at auction is a complex matter that should only be attempted by full time experienced real estate auction professionals.

Commissions and fees may vary, sellers must pay all marketing expenses up front and buyers typically pay 10% of the sales price to the auctioneer of which a share goes to participating real estate agents.

Types of Real Estate Auctions

Auctions are effective because they create a sellers market. Professionally conducted real estate auctions create urgency, a reason to buy today and competition for the property. Terms and conditions of sale are established ahead of the auction. Real estate auctions will follow one of these three approaches:

Absolute Auction
The property is sold to the highest bidder regardless of price- using this process often returns the highest sale price.

Minimum Bid Auction
Seller agrees to sell at or above a published minimum bid price this method is useful for internet auctions.

Seller Confirmation or Reserve Auction
With a reserve auction, the seller reserves the right to accept or decline any bids usually within 48 hours of the auction. Reserve auctions are used when there is a lien on the property from a lender or a court ordered sale with a minimum selling price.

 

Foreclosure's shadow falling over commercial real estate

Think it's tough to refinance your home loan? Pity the poor commercial real estate owner. These guys often must refinance -- their loans only last, say, five to 10 years -- and they're having a dickens of a time doing it.

Thus 1st Mariner Tower at Canton Crossing is facing an Oct. 21 foreclosure auction, as Hanah Cho reports today. Baltimore banker Edwin F. Hale Sr. said the loan matured in August and the lender decided not to renew, though he said he's current on the loan. And he can't find anyone else to refinance it:

"There are no hedge funds, insurance companies, banks to go out and redo loans," Hale said. "I've been on a trek literally around the world trying to get this financed. And I have a lot of company."

The Wall Street Journal wrote on its Deal Journal blog to expect things to get worse, not better: "By the end of 2012, close to $100 billion of the loans that comprise [the commercial mortgage-backed securities market] are likely to face difficulty being refinanced because real-estate values have fallen so far that the borrowers won’t be able to extend existing mortgages or replace them with new debt."

 

Antivirus Software Pioneer Gets Dose of Reality

Falling From $100 Million Peak, John McAfee Says: 'I Feel a Sense of Freedom"

By CHRIS BURY and MARY MARSH
Sept. 1, 2009

John McAfee knows about risk. A mathematician by training, in the late 1980s he McAfee developed the antivirus computer software program that has become a household name. In the 1990s he pioneered instant-messaging. In both cases, he grew bored and cashed out. At his peak, he was reportedly worth about $100 million.

"I don't know and that's the honest truth, eventually you have so many resources that a tiny fluctuation in the market can make you worth ten million dollars more in the morning and ten million dollars less in the evening," he explained of his ever-changing net worth. Like many wealthy Americans, McAfee was hit hard with the simultaneous collapse of real estate, stocks and Wall Street investment banks. But he got whacked more than most, since much of his fortune was tied up in luxury properties.

"Oddly enough, when real estate markets crash, it's the higher end properties that crash the most ... simply because they're not necessities," he said. "My father always said, 'Real estate, you can't lose in real estate' ... you know, oddly enough you can."  Last Saturday, auctioneers worked up bids for his 80-acre retreat in the high desert of Rodeo, N.M. With a private airstrip and hangar, it's a slice of paradise, and it's all up for grabs.

"Everything that you see, from the real estate, the house, the automobiles, artwork, furniture, the entire ball of wax," McAfee told ABC News.  Raising the stakes for McAfee, it's an absolute auction: The highest bid wins, no matter how low it is. "It means if only one person shows up and they bid fifty cents, that's the amount of money I get," he said.

McAfee's net worth dropped from within the ballpark of $100 million to less than $10 million, he told ABC News. But instead of feeling a sense of loss, he says he feels free. "I feel a sense of freedom," he said. "People think that it's a joy to own things. But it really isn't."

McAfee has sold his private twin-engine plane, beachfront property in Hawaii and a Colorado mansion in the shadow of Pike's Peak. His posh New Mexico getaway is the last property to hit the auction block.

"At one point, I had five houses in five different locations and it's impractical, it's almost insane to have that much real estate," he conceded. "You can only be in one place at a time."

 

Auction action spurs Florida home sales

Auction sales of homes have been making the news lately. That’s because many banks around the country find that auction sales move their REO (real estate owned) inventory much faster than conventional sales. Approximately 10% of the foreclosures around the country are selling this way. But they’re selling not only to Americans, but to a large percentage of foreign investors.

According to the Orlando Sun Sentinel, 27 luxury condos at Artisan Park in Celebration were recently auctioned for more than $6 million, and so were 10 homes at an active-adult community in Ocala. Using the telephone and the Internet, international buyers from Dubai, Sweden, and the United Kingdom were able to participate.

Auctioned homes typically sell at a substantial discount, around 65-70% of what they would bring if sold conventionally through a realtor. The Baltimore Sun mentioned a package of homes that just sold at auction for $843,000. It was financed 2 years ago for more than $1.3 million. According to the auctioneer, the bids were higher than expected.

This buying surge, especially at higher prices, indicates increased confidence in the Florida real estate market and the general US real estate market, by both domestic and foreign investors. They are seeing a bottom in the market, and are buying before the rise. Typically, these properties bought at discount will be resold to the public at 85-90% of value. As a result, everybody is happy. Investors make a profit and the secondary buyers perceive that they’ve found a bargain.

As foreclosed homes in Florida and other parts of the country continue to glut the market for the next couple of years, we can expect the auction sales of homes to become a larger piece of the real estate sales pie. If you’re a home buyer, don’t be surprised if you find your agent steering you to an auction. After all, as agents, we earn a commission when you purchase a house that we directed you to. If we bring you to an auction—and the house you purchase gives you what you were hoping for in a home—we’ve done our job. What’s more, we’ve saved you money.

However, there is a large aspect of caveat emptor (let the buyer beware) in home auctions. Unlike a standard purchase, where you have the chance to do a cursory inspection on your own and later bring in a professional to make sure everything is in working order, auctions do not grant buyers this luxury.

Should you discover a problem of any kind in a home you’re purchased at auction, there is no no recourse. You own it, and all the fix up costs that go with it. If you change your mind after you’ve won the auction, you lose the 10% cash deposit you’ve already put up, plus you owe the auctioneer up to a 10% buyer’s commission on the full cost of the house.

So, before you put in a bid on that bargain home, you need to do several things. First, inspect the home as well as you’re able. If you’re really serious about it, hire your own inspector or engineer and have him or her take the home for a test drive. Second, ascertain the current value of the home and homes in the surrounding neighborhood.

One of the compelling aspects of home auctions is the thrill of the kill. You perceive a bargain, and you’re going to get it. Of course, your fellow bidders feel the same way. The job of the auctioneer is to take your collective energy and engender great excitement. This translates into ever-escalating bids. So pay attention to the bidding frenzy. Because if you overpay due to overzealousness, it’s not a bargain anymore.

If you’re a seller and you decide to use an auction as your sales vehicle, you’re likely to receive at least two thirds of the current value of your home on average, and perhaps a bit more. You can expect to sell within about 60 days of putting your house on the block, and you won’t pay a realtor’s commission. That expense is paid by the auction company and comes out of the buyer’s commission.

 

Pressure's on at auctions

Investors, agents eye value, profit as they bid on foreclosed properties

By MICHAEL COIT
THE PRESS DEMOCRAT

Cashier's checks in hand, three men step out from a pack of real estate investors gathered in front of Sonoma County's administrative headquarters to bid on a foreclosed house. Starting with a minimum bid of $220,000 - about two-thirds the price the house might fetch on the market - the bids ratchet up as an auctioneer calls for offers.

One would-be buyer pulls out before Brian Burke, a veteran of these now daily sales, makes his final offer. Then the third bidder puts up $5,000 more and gets the three-bedroom Windsor house for $265,000.

Going higher was too risky for Burke. More cash added to repair costs, agent commissions and taxes would cut into potential profits when reselling -- "flipping" -- the property in a couple of months.

"This is all about numbers. You have to have enough cushion between what you paid and what you think you can get," said Burke, a Santa Rosa real estate broker. "There's a lot of competition here. It drives up the prices."

Bidding has heated up as more investors turn out at auctions of foreclosed homes in Sonoma County. Investors said banks are more aggressively cutting prices, increasingly taking losses at these public sales rather than later on the resale market.

More than 1 in 10 foreclosed homes sells at public auctions in Sonoma County, up from less than 2 percent a year ago, according to property records and ForeclosureRadar, an East Bay real estate information service.

Banks have not adopted a strategy to sell more foreclosed homes at auction, said officials at several of the nation's largest banks. But sales picked up as banks moved away from a previous practice to base prices on loan amounts on foreclosed homes -- typically far higher than what the home would sell for on the market.

"You can't price to the loan amount any longer. It's been some time now, which is what you would expect in a declining-value market," said Rick Simon, a spokesman for Bank of America. "We set our prices at auction to the current market value."

Selling at auction also eliminates uncertainty over how much farther prices might fall before a bank can sell a so-called "real estate owned" home on the market.

"Our goal is to minimize the loss. Reselling as an REO property extends the time it takes to get money for the asset and creates uncertainty about the price. Allowing someone else to buy at the auction provides a known price quickly," said Thomas Kelly, a JPMorgan Chase spokesman.

Rising sales at foreclosure home auctions could mark another stage in the housing market's transition. With prices leveling off at the lower end, more buyers appear confident that homes they purchase at auction won't lose much value before they put them up for resale. Foreclosure homes first must go to public auction. If they are not purchased, they go back to the lender to sell on the open market.

Purchases of foreclosure homes have driven strong sales at lower prices, the busiest end of the market during the lingering housing downturn. Leading the way are first-time buyers who can once again afford a home in the region. A much smaller but growing number of investors also have jumped in to buy homes to fix up and sell or rent.

Auction sales have picked up this year as banks cut prices on more homes, drawing more offers from investors. "Banks seem to be more aggressive now than they were. There's a large amount of foreclosure properties still coming. That could be another reason why the banks are just getting rid of these," said James Madison, who sells foreclosure homes for banks and has resumed buying others to fix up and resell.

Investors also have turned to auctions to avoid bidding battles over foreclosure homes in the resale market. "People are fighting over properties. Lately I've been buying more auction properties," said Scott Osborne, a Marin County real estate investor and regular at the Sonoma County auctions.

Price competition at auctions is picking up as well.

After a rapid exchange of about 60 offers with another investor for a Santa Rosa condominium, Osborne prevailed at $80,000. He plans to rent it out. The other buyer hoped to resell it for $130,000. Osborne turned over cashier's checks to the auctioneer. The other buyer, who wouldn't give his name, smiled and walked away, preparing for the next auction.

Two dozen or so investors often turn out for the auctions, and many know each other. "It can be stressful, but you've got to keep it fun," said Osborne, one of the newer investors. Still, the pressure to make smart decisions is palpable. These investors put sizable sums of cash at stake for homes they cannot inspect and may need two to three months to sell.

"You really don't know what you've got until you've taken possession," Madison said. "That's why there's only a certain amount of people willing to do this because you are taking on a lot of risk so you need a lot of cash."

The challenge for banks is hitting a mark on pricing low enough to draw bids but also minimize losses. "People are looking for what they consider a bargain. We want to protect as much of the investment as we can, even in a falling market," Simon said.

 

In real estate, agents scramble to survive

Catherine Reagor - Aug. 23, 2009 12:00 AM
The Arizona Republic

Real-estate agents have been among those hardest hit by the housing collapse.

As the entire Phoenix real-estate industry remakes itself in pursuit of a recovery, agents who once sold 10 homes a week and earned six-figure salaries now tend foreclosure properties for little more than gas money while they hope for a listing.

Brett Barry is a well-known north Phoenix agent who has gone from selling dream homes to handling evictions and open houses for . He moved his office into his living room, works much longer hours for far less money but still makes his living selling homes.

Housing is metropolitan Phoenix's biggest industry. This is the second in a periodic Republic series on how different segments of the housing industry are reinventing themselves to work toward a recovery.

During the boom years there were nearly 80,000 real- estate agents in Arizona. According to the state's Real Estate Department, the number of active agents has dropped 20 percent since 2007.

Former Valley real-estate agents are working at restaurants, grocery and clothing stores, and temporary office jobs. Some plan to go back to selling homes when the market recovers, while others have given up on the business.

"I was recently at a restaurant, and the guy serving us used to be one of my big competitors," Barry said. "It's humbling for all of us. I told him not to feel bad about being a waiter because I am basically a runner for lenders these days, dealing with many unhappy people for not much money."

In 2005, metropolitan Phoenix led the nation in home-value appreciation. Speculators hunting for quick profits sparked bidding wars on homes. Sales and prices soared. In 2005, the value of a typical Valley home climbed 50 percent. Since 2007, home prices have retreated that much or more in most neighborhoods.

In 2006, the typical commission for a local real-estate agent was 3 percent on a $270,000 home. Now, it's more like 2 percent on an $80,000 foreclosure home that requires a lot more work and up-front costs to sell.

An agent for 13 years, Barry started overhauling his business in early 2008 when it became clear that foreclosures were going to dominate the Valley's housing market. He pursues local foreclosure listings from lenders across the country and takes on work and costs he may never recoup. Instead of showing homes to prospective buyers, he spends much of his day driving by himself to foreclosure homes far from his north Phoenix neighborhood. When he arrives at the homes, instead of being greeted by happy sellers, he must prowl around the yard taking photos and notes on the house's problems.

Tom Farley, chief executive of the Arizona Association of Realtors, said now is a difficult time for many agents. "Our membership is down 21 percent," he said. "Right now, unfortunately, it's not the dream home, feel-good business that drew many people into it."

 

In the Grip of Indecision

PICTURE this: You are standing on the edge of a pool, trying to figure out whether to dive in — do you or don’t you?

Piotr Redlinski for The New York Times

BACK AND FORTH
After much deliberation, Hans Tester bought a one-bedroom. “I couldn’t take another day not deciding,” he says.

A few years ago, buying real estate was that simple. If you loved the place, you could buy it. If you were ambivalent, you could buy it anyway, because if you changed your mind later, you could always sell it at a profit.

But these days, buying a home is more psychologically demanding, fraught with conflict and confusion. Buyers and sellers need to know what they want to own, and commit to it — a challenging task for even the steeliest New Yorkers. Nothing is ever perfect, even when you have a big budget.

Confounding the emotional calculus is the fact that home prices could drop in the autumn — or not. It’s anybody’s guess.

These questions, psychologists say, have left a bewildered public even more unsure about what to do this summer, no matter what the economic indicators seem to point to. “The tipping point for many people is when they finally become exhausted by their emotions,” said Kathleen Gurney, the chief executive of the Financial Psychology Corporation in Miami, which studies the psychology of money management. “People will do anything to not regret how they feel.”

For many homeowners who bought at the top of the market, admitting what now seems to have been a mistake is painful, and could keep them from selling, even though the decision may be a smart one. “If they don’t sell, they don’t regret the loss,” Dr. Gurney said. Others don’t want to look dumber than their equally unfortunate friends.

But the fact is, no one is immune to ambivalence and confusion.

In June, Hans Tester, an actor, signed a contract to buy a one-bedroom apartment on the Upper West Side. Yet, just a few weeks later, he joined half a dozen other people in a hallway on the 14th floor of the Park Royal on West 73rd Street, waiting to see apartments for sale. He had continued to look at apartments in other buildings, worried that the deal might fall through.

Mr. Tester had agonized for months over whether to buy, and where. He looked at houses in Los Angeles but opted against moving there, he said, because “in New York, I feel good, happy and centered.” He spent hours perusing real estate Web sites and sometimes attended 10 open houses in a day. “This is all I’ve thought about since October,” he said.

Conflicting opinions from friends and real estate brokers have made it difficult to gauge whether he made the right decision in buying. “Everyone is telling me prices can go down another 30 or 40 percent,” he said. “Others say it is time to buy.”

Ultimately, though, when he saw a place he liked, he felt that he had to sign a contract or risk feeling worse later about having missed it. Now he feels good about the decision — he was recently approved by the board and can quit looking.

“I couldn’t take another day not deciding what to do,” Mr. Tester said.

In calculating what to own, primal concerns like job security and loss of income are more important now than price. Nearly two-thirds of New Yorkers believe that now is a good time to buy, according to a recent study of 2,000 potential buyers who responded to weekly polls conducted by the Corcoran Group on its Web site.

But 59 percent of those buyers also said that their ability to make a purchase was based on whether they received a bonus, which is no longer a sure bet, especially for those working on Wall Street.

But while conscious concerns about finances clearly matter, unconscious ones are at play, too. “The herd mentality was influential in getting people to jump into the bubble, and it is the same keeping people out,” said Mary Gresham, a clinical psychologist in Atlanta who studies personal finance issues. “Anxiety runs through a culture just like greed.”

Or, as Dr. Gurney put it: “They’d rather be a part of a crowd, even a crowd of losers, than stand out.”

Debra Bondy, a Corcoran broker who also happens to be a psychotherapist with a practice in Park Slope, Brooklyn, says she has been doing a lot of hand-holding lately for buyers and sellers as they grapple with conflicting emotions. She has also had to interpret, as much as listen to, what her clients say.

She says that two types of real estate investors are now dominating the market: first-time buyers, and sellers who are adjusting their attitudes to market conditions.

“Those who have a secure sense of self and an openness to market changes are going to be the most successful,” Ms. Bondy said. “I can’t make people do anything: I can only steer them. They have to do things in their own time. I will provide them with as much information as I can. But if they choose not to buy or sell, that is their decision.”

Despite the available information, some people still remain paralyzed. Such was the case for Dani Gorman, the executive beauty director at Self magazine.

In July 2007, Ms. Gorman was ecstatic with the purchase of what she thought was a relative bargain: a one-bedroom in Midtown Manhattan for $615,000. Six months after she moved in, she met her boyfriend, Yale Pollack, who rented an apartment in Great Neck, N.Y., on Long Island.

 

Investor Report: Auctions a Growing Niche 

by Kenneth R. Harney

What's the fastest growing niche in real estate, one that's seen an increase in residential sales volume of 48 percent in the past 60 months? 

The answer is auctions, they're booming while just about everything else in commercial and multifamily is flat or declining. 

Last year alone, $59 billion was sold in private live-auctions, according to the industry's trade group, the National Association of Auctioneers. This year, with commercial real estate in a free-fall in some urban areas, auction volume is expected to be even higher. 

But why should owners of investment property give serious consideration to auctions? Realty Times talked with several key leaders in the auction field about that last week. 

No surprise, of course, that they are strong proponents of the auction method of marketing income real estate, and especially distressed properties where buyers appear to be few … or they're all vultures. 

Alan Kravets, president of Chicago-based Sheldon Good & Co., one of the largest real estate auction firms in the U.S., says auctions are most effective during accelerating markets, like we had during the boom years for both residential and commercial properties, and during decelerating markets, which is what we have now. 

In an accelerating environment, live auctions of investment property where all the due-diligence is available to fully-vetted, competitive bidders gathered in a single room, can push prices far beyond what the seller imagined was possible. 

In decelerating markets, on the other hand, Kravets argues that “you use auctions to cut your losses. You catch the falling knife, so to speak” -- limit your carrying costs immediately, and get out -- usually at a higher net return than you'd have gotten by leaving the property dangling on the market for months. 

Chris Longley, deputy executive director of the National Auctioneers Association, says live auctions have become key elements of the 2009 distressed property marketplace, and are being used “to quickly establish true market values in environments where people aren't really sure what the values are. “ 

Banks increasingly are using auctions as loss-mitigation tools. For example, a lender might tell a financially- troubled developer with a partially-sold-out condo project that also has retail square footage: Look, we need to raise cash fast, so we will put out the 25 remaining condo units for auction. We'll work with you on the retail space, which we think can be turned around over time and be viable. 

Bottom line: Consider adding auctions to your strategic game plan if you need to sell into a down market. They're not a panacea. But they work. 

Published: July 31, 2009

 

Luxury prices keep falling: Mansions priced at $1 million-plus are harder to sell, so owners ask for less and add perks

By LISA BLACK

Chicago Tribune

CHICAGO -- After lowering the $4.2 million asking price of their Lake Bluff estate three times and by more than $1 million, Mike and Marti Palmer flirted with the idea of trading the still-unsold custom home for something smaller.

They own 70 percent equity in the 9,700-square-foot home perched on a wooded ravine near Lake Michigan, and are by no means "distressed sellers." But they have been forced to think creatively about how to market the 15-room English-style manse - now going for $3 million - amid a recession that has hit the upper bracket especially hard.

"Unfortunately, we put it up just before everything tanked," said Mike Palmer, a financial consultant who is pragmatic about the competition. "Everything is on the table."

Real estate agents say they have never seen prices drop so precipitously when dealing with opulent, often empty high-end homes along the North Shore that cost a small fortune to maintain and keep secure. Though homes in the $400,000 to $700,000 range have weathered the financial storm better than expected, the glut of eye-popping mega-mansions has owners competing for the attention of a select few.

"It is a phenomenon we've never seen in our lifetime," said real estate agent Jason Hartong with Rubloff Residential Properties, who has seen some multimillion-dollar price tags cut nearly in half.

Nationally, the scenario is much the same. The pool of people wealthy enough to afford such luxury already represented a small sliver of the marketplace. Home transactions priced at $750,000 or more made up 4 percent to 5 percent of transactions before the recession, said Lawrence Yun, chief economist of the National Association of Realtors.

Today, only 2 percent of housing transactions are taking place in the same upper-end price range, Yun said.

"Many of the wealthier people have their wealth tied to the stock market," he said. "Given that the stock market is down 30 percent to 40 percent-even with the recent run-up-that has eaten into their financial resources."

At the same time, lenders are hesitant to approve so-called "jumbo loans" that are necessary for some buyers to finance a million-dollar-plus property, said Terese Penza, president and CEO of the North Shore-Barrington Association of Realtors.

Developers, many now in bankruptcy, were caught by surprise, as well. Vacant and unfinished homes dot the Chicago suburbs, with for sale signs that tout the "New Price."

For instance, a custom-built stone home in Winnetka priced at $5.5 million in November 2007 is going for $3.3 million.

It's enough to make builder Farhad Nikamal sick, as he describes the loving attention he paid to detail in planning the two-story reception hall with marble flooring, a Brazilian cherry staircase, hand-carved travertine marble fireplaces and a 1920s French chandelier.

"This has cost me almost $3.9 million," said Nikamal, leading a tour through the house, protected with wrought-iron gates and a security system. He believes that many potential buyers are bargain-shopping and have been brutal in taking advantage of the poor economy. "People should understand, right now, this is beyond a bargain," Nikamal said.

He is considering raffling off the 6-bedroom, 8-bathroom luxury home, which sits across the street from Lake Michigan. "You are not going to see this again," he said, shaking his head.

Less than a mile away in Glencoe, a renter occupies a 15-room white-brick monolith. The home, owned by a developer and constructed in 2007, has dropped to $2.8 million from the original asking price of $4.3 million.

 

Sunday Real Estate Round-Up, 07/26/09

by Deidre Woollard Jul 26th 2009 at 9:01AM

--Brian Austin Green has listed his four-bedroom Tudor style home in Los Angeles, shown above, for $2.395 million.

--The estate of Jimmy Durante has put his three-bedroom home in Beverly Hills on the market for $3.395 million.  .
--Hard Rock Cafe heir Harry Morton has listed his two-bedroom unit in West Hollywood's Sierra Towers for $2.895 million. He paid $3.5 million back in 2007.  --LeVar Burton has listed his home in Sherman Oaks, California for $1.85 million.

From Berg Properties
--The Gosselins have dropped the price of their former home in Elizabethtown, Pennsylvania from $325.000 to $315,000.  
--A two-bedroom house in Los Angeles' Hollywood Hills area that Axl Rose of Guns N' Roses once owned has been listed for $1.25 million. .

--"Weeds" creator Jenji Kohan has placed her three-bedroom home in the Los Feliz area of Los Angeles on the market for $1.597 million.
--Actress Parminder Nagra has put her four-bedroom home in Los Angeles' Los Feliz area back on the market for $1.375 million.  

--Olympic gold medalist Lenny Krayzelburg has sold his home in the Hollywood Hills for $3.575 million.

From Cityfile's
--Michael Lemos, the son of a Greek shipping tycoon, is raising the price of his apartment at 2 East 67th Street again. It went on the market for $34.9 million in May 2008, was increased to $39.5 million last July, is now listed for $45 million
-- Och-Ziff chief financial officer Joel Frank and his wife Lynn paid $9.4 million for a third-floor condo at 15 Central Park West last October. But now they're buying an apartment downtown, too, a 1,200-square-foot pad at 99 Jane Street for $1.5 million.
--David Schrader, a former senior managing director at Bear Stearns, has sold his 12th-floor apartment at 30 Fifth Avenue for $1.95 million.
-- disgraced lawyer Marc Dreier's condo at One Beacon Court sold at auction for $8.2 million after 45 people placed bids on the 3,000-square-foot pad. The buyer is Ajit Jain, a protégé of Warren Buffet and the head of Berkshire Hathaway's reinsurance group.
--David Salomon, co-founder of California-based Financial Asset Trading & Technology, and his wife Joanne, have picked up a condo at 530 West End Avenue for $3 million.
--Broome Street building where Heath Ledger died in 2008 has changed hands. The property's lender, Donald Burns of Palm Beach Mortgage Management, paid $15 million for the building.
--Coldplay bassist Guy Berryman has paid $2.65 million for an apartment on the second floor of 79 East 2nd Street.


From the NY Observer's

--Art dealer W. Graham Arader III has taken his mansion at 1016 Madison Avenue off the market. We checked it out in 2007 when it was listed at $75 million.
--Attorney James Triedman paid $3.65 million for a three-bedroom co-op at 14 East 90th Street which was listed at $4.25 million.
--Investment strategist Jason Trennert paid $3.25 million for nine-room co-op at 22 East 88th Street which was listed at $4.695 million.
Artist Richard Prince has paid $11.5 million for a townhouse located at 57 East 78th Street.
--Mediabistro founder Laurel Touby has paid $3.905 million for a penthouse at 43 East 19th Street.
--Former Bear Stearns executive Alex Reyfman has sold his co-op at 245 West 107th Street for $1.555 million to William Ulfelder, director of the Nature Conservancy of New York.

 

Why Do Home Foreclosures Keep Rising?
6 Things You Need to Know

by Luke Mullins, USNews.com
Jul 20th, 2009

Five months after the Obama administration unveiled a sweeping initiative designed to reach 9 million struggling homeowners, home foreclosures continue to rise at an alarming rate. Foreclosure filings were reported on more than 1.5 million properties in the first six months of the year, a 15 percent increase over the same period of last year, according to RealtyTrac. All told, 1 in 84 American homes--or 1.19 percent--received a foreclosure filing during the period. "We talk about green shoots or about things getting worse at a slower rate, but this is one thing that is getting worse month by month," says Patrick Newport, an economist for IHS Global Insight.

Here are six things you need to know about the rise in home foreclosures:

1. Unemployment: The erosion of the labor market--the unemployment rate recently hit 9.5 percent--is the key factor in the rise of home foreclosures, says Celia Chen, an economist at Moody's Economy.com. "Employers continue to shed jobs, and that makes it difficult for even people with good credit who were doing fine to keep up with their mortgage payment," Chen says. For example, a recent report issued by federal bank regulators found that home loans to borrowers with solid credit histories were going bad at a rapid clip. "Prime loans, which represented two thirds of all mortgages in the portfolio, experienced the highest percentage increase in serious delinquencies, climbing by more than 20 percent from the prior quarter to 2.9 percent of prime mortgages," the report stated.

2. Plunging home values: Nearly three years after its peak, the painful decline in home prices continues. Although the pace of decline moderated slightly from the previous month, home prices in 20 major metro areas dropped 18.1 percent in April from a year earlier. Falling home values have dragged more than 20 percent of American homeowners "underwater"--meaning they owe more on their mortgages than the property is worth--as of the first quarter. By sucking equity out of homes, the price declines have also evaporated much of a homeowner's financial incentive for paying their mortgage bill, Chen says. "When somebody doesn't have equity in their house and they are struggling to pay their mortgage, the likelihood of a foreclosure is much higher," she says. In addition, home owners with less equity in their homes will have a more difficult time refinancing their mortgage.

3. End of foreclosure moratoriums: The end of certain foreclosure moratoriums-including those of Fannie Mae and Freddie Mac, which were lifted in late March-also contributed to the rise in foreclosures during the period, Chen says. As these efforts unwound, lenders and servicers put additional properties into their foreclosure pipelines, she says.

4. Is Obama's plan working?: A key component of Obama's housing rescue plan is an effort to restructure--or modify--as many as 4 million troubled loans. So far, about 325,000 modification offers have been made through the program, according to Bloomberg news. Chen says the program is having an impact for certain individual borrowers, but the efforts--at least so far--have not put much of a dent into the national foreclosure epidemic. "The program is making progress. It's just that there are a large number of distressed borrowers out there," she says. "It's so hard to process all of those loans, and then second of all, not all of those borrowers will qualify for the program." Borrowers have complained of long delays and bureaucratic hurdles in their efforts to modify their mortgages.

Though the administration's effort includes incentive payments to convince servicers to modify the loans, Newport says some may find it less costly to foreclose on the property. "My understanding is that there is going to be some pressure from the administration to get banks to start renegotiating more loans," he says. "But if [modification is] not in [the servicer's] self-interest, I don't think that they are going to do much."

5. Mounting political pressure: Mortgage services appear to be facing mounting pressure from Washington to redouble their efforts. "We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share," Treasury Secretary Tim Geithner and HUD chief Shaun Donovan said in a recent letter to 25 mortgage servicing firms. In a hearing last week, Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, expressed his frustration more directly. "Why am I still reading about lost files, understaffed and undertrained servicers, and hours spent on hold on the phone?" Dodd said in a prepared opening statement. "Why are servicers and lenders refusing to accept principal reduction so that homeowners can start building equity and get the housing market moving again?"

6. Foreclosure outlook: Despite this pressure, Newport expects foreclosure rates to creep higher for the next year or so. "It's going to keep on getting worse until the unemployment rate peaks, which we think will happen in about the middle of next year," he says. For her part, Chen argues that a successful mortgage rescue program could expedite a housing recovery. "The hope is that we will be able to push through enough mortgage modifications to prevent home prices from falling too much more," she said.

 

Auction Gavels (Again) Mark the Return of Distressed Real Estate

Call it an 'Auction' or an 'Accelerated Marketing Model," The Seller's Objective is the Same -- To Fast-Track Deals Via the Auctioneer's Mallet