Sunday, November 27, 2005

Foreclosures A 'Growth Business' In Massachusetts

This report from Massachusetts found increasing interest in foreclosures. "Welcome to the world of the home foreclosure auction, where anything from a shoebox condo to a mansion can be yours for highest bid. For some, the game promises big winnings, while for others, the process contains much risk."

"Facing personal money problems and a slowing real estate market, more people are headed for foreclosure. 'Our business is probably up 30 percent over last year, which was a busy year,' said Stanley Paine, who runs an auction business in Newton. 'As they say, this is a growth business, which is a shame.'"

"For instance, Paine said, a house that was selling for $950,000 in Newton in better times may fetch $825,000 or less now, he said. 'If it's dropping off in Brookline, and Newton, and Wellesley, you know it's tough,' Paine said. Paine said many of the foreclosed homes he sees belonged to people who had bought just a year or two ago."

"The banks also won't give bargains the way they once did, Paine said, often refusing to part with the property for less than 70 percent of its fair-market value. If bidders fail to make acceptable offers at an auction, a bank representative will buy it back. At the Spring Lane home in Marlborough, for instance, the highest bidder was not high enough for the bank, which then bought back the property for a little more than $215,000."

"Successful bidders must also pay back property taxes and other liens. People usually can't go inside the home, can't have it inspected, and have no idea if a structural flaw, mold, pest, or some other expensive problem waits on the other side of the door. Experienced investors prepare by talking to neighbors and researching public records available on the property, said Karl Hanner, a Southborough investor."

"'You can look in the windows if you want, you can do your homework, you can have a good feel for what you're doing,' Hanner said. People with experience can make some educated guesses from what is visible, he said. 'But there is a risk factor.'

"Hanner said he..won't buy an auction property unless he can make $50,000 or $75,000, after costs and repairs. He cautions people from getting sucked into competitiveness or ego clashes at auctions. 'The biggest thing is not to get caught up in the bidding process,' he said."

"These days, Hanner said, quality properties are harder to find. Times have changed since the real estate bust of about 15 years ago, when auction sales were plentiful, he said. 'The party really has been over for several years now, and a lot of people coming in are late for the party,' Hanner said. He has one piece of advice for newcomers. 'Unless you're an investor with a bankroll, don't quit your day job.'"


At 1:38 PM, Blogger NurseLiz said...

Looks to me like foreclosures may be the wave of the future - except the bargains won't be there.

At 3:39 PM, Blogger processor said...

I know a couple of people who made a business of buying foreclosures. One got out, the other continues to do so. It's in many ways a rigged game.

Nevertheless, the fellow who continues to invest in foreclosures told a story of feeling smug about getting a good price on a property. "When I walked in I could see the the sky." I was so naive, I asked him if the property had skylights. He and the broker cracked up laughing. (The broker had heard the story.) No. The property owner had removed most of the roof. He had also poured concrete down every available pipe. The house was in too many ways ruined.

That story was from years ago. This guy apparently had the cash to keep going. Foreclosures are not for the faint of heart or those with shallow pockets.

At 6:20 PM, Blogger Chip said...

Processor - "It's in many ways a rigged game. ... Foreclosures are not for the faint of heart or those with shallow pockets."

That's what has kept me from considering them. Seems there will be money to be made by a middleman who can minimize the risk by carefully vetting potential good deals. If the market tanks really badly, I'd think those of us with cash might be courted by the lenders; I'd pay a healthy fee to an outfit that could give me 98% assurance I haven't failed to dot an "i" along the way and that the pipes are not full of concrete.


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