A good friend of mine is currently renovating a condo in an up-and-coming (actually, a somewhat-already-here) neighborhood.
The neighborhood has turned out to be a real find, so much so that a relative who works in real estate is thinking about buying down the street.
Now, this family member is a classy lady. I don’t see her being interested in a fixer-upper, but rather a home that is ultra-modern, something hip.
New construction condo, I asked? The friend lowered her eyes, sheepishly. "No," she said, somewhat nervously. "She’s actually thinking about buying a foreclosed property. It’s for the investment. I know that sounds bad."
Does it? Buying a repossessed home doesn’t hurt the person who has lost it. You’re not taking it from them; the bank already did that.
No, Thank You
In fact, buying a repossessed home is helpful. We have an excess of properties in the U.S. — yes, that’s due largely to new construction continuing as buyer interest slowed down, but as more people default on mortgage payments because of increased mortgage costs, the housing supply is swelling.
To get home prices and value back up — and to reignite a need for new construction — we need to create a demand for housing. That’s not going to happen unless we get rid of some if the homes sitting on the market — instead of adding more.
After all, if a bank adds a home to the market instead of a buyer, it doesn’t change the fact that there is another home on the market.
But why does considering buying a foreclosed property feel like taking advantage of someone else’s disadvantage? Maybe it’s the bankruptcy bad karma bug: Even if you’re helping the economy out, you still feel like you’re doing something wrong.
We Buy; We Wait
Real estate company New Home Experts has created an interesting program to encourage homeowners to put their properties on the market. They secure the sale by offering to buy the property if it doesn’t sell in a set time period; it’s provided consumer confidence, I’m sure, but it has also provided New Home with a lot of not new homes.
Therefore Holland Home Auctions, a company owned by New Home, recently announced it would hold its first Chicago real estate auction of around 150 Chicago and Wisconsin residential properties on November 10.
It’s not a bankruptcy auction — the company bought the homes last year from owners looking to trade up. But then why did Holland sound slightly on the defense — in its own press release — when answering the self-posed question about where the company obtained so many homes?
"Last year my company developed a new home purchase concept, the sure sell program, where my company buys the existing home and the consumer can buy their new dream home," Steve Holland, Holland Home Auctions CEO, said. "Our real estate auction event represents a small fraction of the large number of residential properties currently available in the Chicagoland real estate market."
Still, it’s too many properties for Holland, who said the auction was planned because New Home Experts needs to reduce its inventory. (The U.S. economy can relate.)
The sure sell program is a great idea to alleviate homeowner market concern: New Home Experts will market your home at 5 percent above the appraised value for up to the first 30 days. If it doesn’t sell, the home gets marketed at the appraised value for up to 60 more days.
Then, if it’s still on the market, New Home Experts puts the house out there for 5 percent below the appraised value for up to 90 days.
If the home still hasn’t sold after 180 days, the company will then buy your home at 90 percent of the appraised value.
So it seems, then, that New Home Experts had quite a few unsold homes on the market for almost half a year. At that point, it assumed responsibility for them — for 90 percent of their assessed value.
However, Holland isn’t marketing them now as price-reduced properties — its press release said the auction "is geared to provide the general public with an opportunity to buy a quality home at perhaps a below market value." (Or perhaps a market or above market value.)
If Holland’s auction goes well, selling properties at market prices, it could speak volumes for the company’s ambitious home sale/purchase plan. If New Home has the capital to hold on to properties for as long as it takes in a slow market, great — help out homeowners who can’t but want to buy additional homes, please.
And more importantly: It could be a plan other large real estate companies test in the coming months to up buying and selling in the residential market.
But if a chunk of New Homes’ 150 auction-ready properties don’t sell next month, where will those properties go? Likely back on the market to ready for year two. And we’re back where they — and we — started.