Marilyn Kennedy Melia
Special to the Tribune
July 1, 2007
Maybe there's one down the street, or even next door.
Foreclosures, which should be a rarity, are becoming more common in
neighborhoods around Chicago
and the nation.
The real estate equivalent of a car wreck, foreclosures
draw plenty of attention from buyers, sellers and other area owners.
However, says T.J. McCarthy, owner of a Tinley Park appraisal firm,
"Foreclosures probably won't have any long-term impact [on neighboring
home values]. So if someone is staying put, it shouldn't really matter to
Although "foreclosure" is stereotypically
associated with boarded-up windows and rickety, abandoned homes, in many
instances, a foreclosure looks like any other home for sale where the owner has
moved out, experts say. In fact, the only way McCarthy knew Tinley Park had 600 properties in some stage
of foreclosure in June was to check listings on Internet sites like RealtyTrac.
But for buyers determined to snag a bargain, and sellers
set on garnering a certain price, the foreclosure factor can't be ignored. Here
are some thoughts on how foreclosures can make waves in the market:
Values are set by numbers. Two years ago, The Woodstock
Institute, a Chicago housing research group,
found that in lower-income Chicago
neighborhoods, every foreclosure caused housing values within an eighth of a
mile [a city block] to drop by 1.4 percent.
When foreclosures occur in higher-crime areas, lenders
tend to board up windows to protect properties, notes Geoff Smith, institute
It's possible there's no link between foreclosures and
depressed values in areas where foreclosures aren't evident or numerous, Smith
In fact, "A lot of times buyers don't know that a
home is foreclosed," observes Liz Scheffler, who owns several Century 21
offices in the Chicago
When a lender takes possession of a property, it's part
of its "real estate owned" or REO inventory, which the lender
typically hands to a realty firm to market. For some buyers, it's not until
they negotiate an offer that they learn of the foreclosure status.
Of course, some buyers are already aware a property is foreclosed
and may tender a lower bid, believing the lender is anxious to unload REO
inventory. Should the offer be accepted, it may or may not drag down other
values, McCarthy says.
If comparable properties have recently sold for more,
experienced appraisers and real estate agents treat the foreclosure sale as a
special event, separate from other comparables, agrees Glen Tomlinson, a broker
with Century 21 Sussex & Reilly, Chicago.
Moreover, lenders may demand a price in sync with the
market, experts say.
*Short sales are kin to foreclosures. In mid-June,
approximately 1,000 properties in the Chicago
area were marked as "short sales" in the multiple listings, says
Terry Semmens, district director for ZipRealty.
"Short" refers to the lender's agreement with
the owner — who wants to avoid foreclosure — to take sale proceeds, even if
the amount is less than the owner owes in the mortgage. The lender decides how
low a purchase offer to accept. Just as with foreclosures, buyers making an
ultralow bid may be rebuffed by the lender.
Purchasers can also find that negotiations are
"complicated" says Patrick Carey, senior vice president of default
and retention operations at Wells Fargo. It's not unlikely, for example, for an
owner with a short sale to hold two mortgages from different lenders.
*Local expertise is key. Although the numbers are
mounting, each foreclosure is unique. Buyers and sellers need
"inside" information to finesse foreclosure-related issues.
A seller, for instance, might contest a low appraisal on
his home if it's heavily influenced by one recent short sale, instead of other
For both short sales and foreclosures, Semmens concludes:
"What makes it problematic is every lender makes it different."