Stalking elusive foreclosure deals: Bargains are few, obstacles are many, experts caution
HACKENSACK, N.J. – Joseph Licari and Danielle Block had a simple goal when they started house-hunting.
“We were looking for a bargain,” said Licari, a 25-year-old civil engineer. “And the bargains were in bank-owned and foreclosed homes.”
They recently bought one of those properties, a small Cape Cod on a leafy street in New Milford, N.J., for $257,000, about 15 percent below its market value, based on its assessment and the prices of similar properties nearby.
Like Licari and Block, many buyers who hope to get a steal, or at least a deal, look at homes being sold by lenders who took possession after a foreclosure.
But bargain-hunters need to know that buying foreclosures – also called REOs, for “real estate owned” by a lender – can be different from buying other homes. The homes are frequently in bad shape, needing tens of thousands of dollars in renovations. They’re most often found in urban areas such as Newark and Paterson, and are much less common in more desirable towns.
And banks aren’t very patient – buyers must be ready to jump when they find the right property. Finally, while the price can be a real bargain, other times the discount isn’t very large.
REOs make up only a tiny percentage of the housing market in suburban towns. In Bergen County, according to the New Jersey Multiple Listing Service, only 2.4 percent of the single-family homes sold so far this year have been bank-owned. Similar statistics are not available for Passaic County, although real estate agents say the percentage of foreclosure sales is higher there, especially in Paterson and other urban areas, where distressed sales make up a larger share of the market.
North Jersey Realtors say they’ve seen REO pricing all over the map. Often, discounts range from 5 percent to as much as 30 percent off market values. But occasionally the house will actually be overpriced.
“You’d better know your pricing,” said Jeff Adler, a Re/Max agent in Mahwah, N.J. “Just because it’s bank-owned doesn’t mean it’s going to be a great value. It’s not a gravy train for buyers.”
Sal Poliandro of Re/Max in Saddle River said some buyers expect to get the properties at half off market price. That’s unrealistic.
“Nobody is ever going to give real estate away,” Poliandro said.
He recently sold a bank-owned house in Wyckoff that was listed 3 years ago for $960,000. That was probably overpriced, he said; it might have been worth $800,000 then, and about $600,000 now – if it were in good condition.
It’s not. The new owner will have to replace the kitchen and patch a lot of holes. But that might be a worthwhile trade-off, because the buyer paid only $395,000.
Jakki Price DeLuca, an agent with Mark DeLuca Realtors in Teaneck and Secaucus, recently sold a bank-owned condo in Secaucus for $305,000. Similar condos in the same complex have recently sold for around $360,000, but they have renovated kitchens and baths, unlike the bank-owned unit. The buyers, she said, “felt they were getting something affordable and that they were getting a good deal.”
Like these properties, most bank-owned properties are not in great shape. At the very least, they’ve likely been neglected by despairing homeowners who knew they were going to lose the homes. At worst, they’ve been vandalized by frustrated homeowners who punch holes in walls and rip out kitchen cabinets and plumbing.
And they’re usually sold “as is,” said Tina Cernuda of Re/Max Fortune in Englewood Cliffs, who has worked in the foreclosure market for about two decades. If an inspection turns up trouble, the banks generally don’t want to hear about it. That’s the buyer’s problem. For that reason, Cernuda said, contractors or very handy homeowners might be the best buyers for REOs.
Block and Licari were braced for the worst after seeing a number of distressed properties.
“You could tell the people stopped caring about their houses,” Block said. They saw homes with filthy carpets, missing appliances, holes in the wall – even one with a large hole in the foundation.
Licari said that when they got to the New Milford house, “we expected a bank-owned house that had passed through foreclosure to be pretty bad.”
“But it wasn’t at all,” said Block, a 25-year-old kindergarten teacher.
The house had clean hardwood floors, walls painted a neutral off-white, and relatively new kitchen cabinets and counters. The bathroom, however, was an eyesore, with outdated pink tiles and a non-functioning toilet. Licari ripped out the walls, toilet, sink and tub, and is renovating the room with the help of his brother-in-law, who’s very handy.
And the entryways to the kitchen, living room and hall rose to a triangular arch that Licari hated. He tore out plaster to square off the tops.
“You just kind of learn as you go,” said Licari, who grew up in Teaneck. Asked how he got to be so fearless about home renovations, he said, “Some people call it fearless. Others call it. ...” His voice trailed off.
Aside from the bathroom renovation, the biggest jobs have been trimming overgrown shrubs in the front yard and painting the walls in vibrant colors like burnt orange, gold, sage green and cranberry. The couple also had to add a stairway handrail, as well as smoke and carbon monoxide detectors, which were required before the town would issue a certificate of occupancy.
By doing much of the work themselves _ with help from family and friends _ Licari and Block hope to keep their renovation costs below $4,000. Because the bank sold the house as is, there were no price adjustments for the work that was needed.
Licari and Block’s agent, Barbara Ostroth of Coldwell Banker in Oradell, said the couple had to be patient, because the bank required more approvals and paperwork than usual. But their patience paid off.
“I think they got a great deal,” she said. “In New Milford, it’s not easy to find a house under $300,000.”
Most bank-owned properties are listed by real estate agents and placed on the multiple listing service, which is how Licari and Block found theirs. Other buyers work with real estate agents specializing in bank-owned properties.
When Poliandro has a listing that is owned by a bank, he’s sure to mention that in his ads, because “I know people are looking for that. That’s what keeps my phone ringing.”
Banks have Web sites that list their properties for sale, along with the name of the listing agent the bank uses. To find such listings, buyers can plug a bank or mortgage lender name into a search engine, along with the word “foreclosure.”
When these properties are priced well, buyers may find there’s a lot of competition.
Federico “Tony” Sanchez, a Weichert agent in Clifton, recently got seven offers on a Little Falls two-bedroom located in a flood zone. The house was listed at $131,900 _ about $120,000 less than its assessed value.
“It’s pricing,” Sanchez said. “I got so many calls on that house. I wish I had 10 of them.”
Similarly, a house in Paterson listed for $90,000 “went in two days,” he said.
“There are good deals out there, but the deals are going to be gone in a couple of days if you’re not working with an agent who keeps an eye out for you,” Sanchez said. “It’s really about just getting there quickly.”
Other agents agreed that buyers have to be prepared.
“Be ready when it happens,” Poliandro said. That means either being able to pay in cash or having a strong pre-approval letter, not just a prequalifying letter, from a mortgage lender. The lender’s letter should be based on a review of the buyer’s W-2s and other documents _ not just the buyer’s statements to the lender about income and assets.
“These banks are looking to close the property right away,” Cernuda said. “If you have a strong pre-approval from a direct lender, you’re a better candidate.”
