Buy foreclosures now - before it's too late
In many markets, if you want to buy a repossessed property, you better come with your best offer first -- and fast.
NEW YORK (CNNMoney.com) -- You've heard of speed dating? It's got nothin' on foreclosure buying these days. In many places, anyone who wants to buy a foreclosure better act fast, or they're going to come away with bupkus.
REOs, the industry term for homes repossessed by lenders and put back on the market, are often selling in a day -- sometimes in less.
"We're seeing REOs go very quickly. Offers come in immediately after the listing comes on the market, within 24 hours," said Brad Geisen, founder of Foreclosure.com. Some homes have been put into contract in less than 90 minutes.
In Stockton, Calif., foreclosure ground zero, the market has changed radically. Last summer, Cesar Dias became famous for founding the "foreclosure tour," in which he packed potential buyers on a bus and ferried them around to some of the thousands of distressed properties.
Today, the foreclosure tour in Stockton is history. There are too few REOs.
"For every listing that comes out, we have 10 buyers," said Dias, an agent with Approved Real Estate Group. "We had a lot of inventory last summer. Now we're down to 1,500 listings -- from more than 5,000."
San Diego buyers face the same trend. "Agents have one or two REO listings now, compared with 15 or 20 a year ago," said realtor Adrianna Delgado of the Delgado Group.
And there's almost no negotiating, no back-and-forth, after the initial bid. "We don't get a counteroffer," said Delgado. "The sellers just ask for your highest and best bid. If you're not prepared to send in your best bid the first day, you may as well stop looking."
In Florida there are so many buyers for foreclosure listings that real-estate investment companies, which had been snapping up properties, are now facing stiff competition, said Vanessa Grout, VP for acquisitions at New Valley, a real estate investment fund.
Even in distressed Detroit, REOs are still in high demand. "For a good house that's not too beat up, in a good neighborhood, there's no lack of buyers in this market," said Andy Sakmar, founder of Century 21 Sakmar in the Motor City suburb of Rochester. "There are a lot fewer of these properties than a year ago, and the super buys get multiple offers."
The biggest factor in the feeding frenzy is, of course, rock-bottom prices. Banks are pricing homes to move.
Sakmar tells of an REO that recently went on sale in a community of mostly $300,000 homes. It was in good shape and should have sold for $200,000, in Sakmar's opinion. Instead, the bank listed it for $129,000.
"It drew thirteen offers in two days," he said.
That kind of cut-rate pricing is very common, according to Foreclosure.com's Geisen. Instead of holding onto REOs for the best prices -- and paying the property taxes and maintenance and heating costs -- banks are selling the homes as quickly as possible.
"In this market, if they can liquidate them fast, it makes more sense to get them off the books," he said.
The trend is causing intense agita for buyers. "People feel like they're getting left out," said Dias, the agent in Stockton. "We show a house on the weekend and it's gone by Monday."
"There are plenty of buyers ready to move," added Mark Brandemuehl, a spokesman for Movoto, a California real estate broker that specializes in foreclosures. "They tell their agents to make bids right away, as soon as they see something suitable come on the market."
The hot spots for this fast-paced foreclosure activity are former bubble markets where foreclosures soared -- places like California cities Sacramento, Riverside and San Bernardino.
In Sacramento, for example, the inventory is down to less than 30 days, making it a cut-throat market. The agents specializing in REOs "have nothing to sell," said Brandemuehl.
On average, inventories of California homes under $300,000, the most popular price point for foreclosure buyers, have shrunk drastically, from a nearly 10-month supply a year ago to less than three and a half-month supply today, according to the California Association of Realtors.
Nationally, the number of bank-owned properties diminished by 26% from June 2008 to June 2009.
The industry attributes the drop in inventories to foreclosure prevention efforts by President Obama and various state governments. In particular, they cite moratorium programs that, at the very least, postponed foreclosures.
The bad news is that as the moratoriums lapse, more REOs will likely hit the market. That's because these efforts tend to delay foreclosure rather than stop it.
"Every lender I talk to has been telling me there's every indication that a tsunami of new properties coming to the market later this fall," Sakmar said.
Geisen sees the same flood, but he attributes it to consumers failing out of Obama's foreclosure-prevention program, Making Home Affordable. He believes that many of the modified loans will fall back into foreclosure -- especially if the economy doesn't perk up soon.
In fact, last year the U.S. Comptroller of the Currency found that 53% of loans that were modified in the first half of 2008 fell back into arrears. Although, that was before Making Home Affordable standardized the terms and qualification process.