Special to the Chicago Tribune
August 31, 2008
Just as the steepest retail discounts carry the caveat "no returns," some housing bargains are "final sale."
Homes that have been foreclosed or languished on the market are increasingly sold at auction, the real estate equivalent of the sale rack.
And the popular image of a housing bargain—freshly foreclosed homes sold by the county sheriff—isn’t for those who want to purchase a place to live in.
Usually, home seekers use private auctions identified by their real estate agent or through ads.
But to make a purchase, buyers must be certain that their financing is secure and that they have inspected the property to their satisfaction.
Once they place a winning bid, the auction contracts typically require closing within 30 days and backing out will cost them the deposit (typically about 10 percent of the purchase price).
The inventory of real-estate owned homes being auctioned has jumped. REOs are owned by lending firms, who take possession after foreclosure.
In addition, more unsold, newly constructed homes are hitting the auction block.
A recent report from the Chicago-based Woodstock Institute shows that professional investors are saturated with properties, leaving more auctioned homes unsold and moving into REO inventory.
Given that there’s a relatively large supply, relative bargain may be found.
"REOs are going at 10 to 20 percent off what the appraised quote is," says Chicago auction-firm owner Rick Levin.
Ismael Hernandez and his wife, Benorina, a real estate agent, say they bought a REO home in Joliet for less than half what it would cost if it had been well maintained. Ismael knows how to do much of the repair work, and his wife inspected the property before the auction.
That’s typical—buyer due diligence is done before a property auction, not after a contract is submitted as in conventional home purchases—and buyers sometimes wait to line up financing too.
Just because a property is being auctioned, it doesn’t mean the buyer will get a deal.
Nearly half of all residential properties owners hope to auction are being turned away by the Chicago-based Sheldon Good & Co., reports owner Steven Good. "The properties aren’t worth what the mortgage amount is," he explains. "Absent the owner working out an arrangement with the bank to take less" than the principal owed, the home can’t be placed up for bidding.
Lenders sometimes agree to take less, adds Good.
Before auction, buyers typically have set times to inspect properties and can pick up an information packet to bring to a lender when they seek financing.
Financing condos in new buildings with lots of vacant units may be difficult because lenders don’t like unsold projects, adds Laurie Tarver, of NRC Realty Advisors, Chicago.
Even when a lender gives a tentative approval, appraisal or other issues can emerge. If the buyer can’t close on the deal, he risks losing his deposit.
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