"You've Caught the NET!"



Here in Chicago, in many neighborhoods and Suburban Chicago Communities, buyers are king!  Especially those with lotsa cash, or stellar credit.

And what are these buyers looking for, gang!

BARGAINS, of course!   They want to save a lot of money.  In our clients' recent jargon, "I wanna steal da joint!"  (Remember, this is Chicago after all - many still talk this way!)

So, many call our Chicago Real Estate Team, asking for a list of Short Sale Properties - those properties where the owners are selling for less than they owe on their mortgage.  Problem here, most of the time, the bank takes their sweet time to consider and approve these sales.  And, more often than not, they are disapproved!

Some bargain hunters head to the Cook County Chancery Court, and try to pick up a bargain at the Sheriff's Sale.  Often times, potential buyers bid too little, and the bank representative outbids them to revert the property to the lending bank.

A higher percentage of success?

Properties that have already reverted to bank ownership - completed foreclosures, known in the business as REO's, for Real Estate Owned by banks - might offer a greater chance of closure, however.

As reported by Patricia Mertz Esswein of Kipplinger News, as syndicated in the Chicago Tribune, lenders are quite anxious to unload REO Properties they acquire, and price them very low to attract a quick buyer.  Often, however, many bank-owned REO Properties sell in multiple offers, at higher than asking price.

Further, some bank-owned properties are in above-average condition - we at Dean's Team Chicago just sold a two-bedroom ranch home in the Norwood Park Neighborhood on the Northwest Side of Chicago in which the bank remodeled the kitchen and baths, upgraded the plumbing and electrical systems, and freshly painted the home to generate peak interest.  Our buyer purchased at a sizable discount, and was able to close quickly.

In contrast, many of the short sale properties our Chicago Real Estate Team has put under contract recently have taken up to one year to close, with considerable back-and-forth negotiation with the bank.  Often, the seller pays a higher price than originally offered, and the closing date is unpredictable.  In several cases, the short-sale lenders have ultimately rejected good offers, at a fair price, after a protracted negotiation.  Buyers get frustrated and walk away, and the distressed seller often ends up in foreclosure.

A national compiler of Foreclosure and Pre-Foreclosure Data, RealtyTrac.com, estimates that lenders presently hold over 950,000 REO Properties, but that less than a third are presently on the market.   Lenders continue to hold back some REO supply, rather than dump hundreds of foreclosures on local real estate markets already struggling to rebound.

On the flip side, for bargain-seeking investors, the REO backlog suggests an ample supply of low-priced real estate will continue to flow to market for months to come.

Please see our post today via BlogChicagoHomes.com.


Comment balloon 2 commentsDean Moss • February 06 2011 11:17PM


I see a lot of competition in the REO market, mulitple offers etc....   In some markets, that is the only segment moving...

Posted by Pat Tasker, Your Milwaukee Metro Area Agent (WI) (Shorewest Realtors) over 8 years ago

Dean, you're right that REOs provide some great bargains, but only for the really confident and willing buyer. The risks taken without any disclosures and, often, properties that have been abandoned by residents for some time may make first-timers too anxious to take the chance.  Short sales, as you aptly point out, are almost - almost - a waste of time for everyone involved.  It seems to me there wouldn't be such a systemic failure of banks to release short sales to good, qualified buyers as you describe above and has been my experience too, if they weren't ultimately aiming to foreclose because the bottom line for them might be better with foreclosure than a short sale. There has been a lot of mystery surrounding this issue, some of which has led to some pretty wacky rumors, funny YouTube videos, and a great deal of mistrust.  That banks are holding on to some 70% of their foreclosure inventory in some markets provides little relief to me as an agent, because while buyers may benefit from low-priced inventory, the general depression that exists in neighborhoods now cannot be made better by further degradation of values and the constant turnover of ownership.  Further, I find it frightening that banks will have so much potential control over market value simply by their desire to either introduce or hold back certain inventory.  If they own the majority, or even a significant portion of the real estate in a particular neighborhood, they might easily be in the business of creating the market themselves, rather than letting the natural trends of the market take hold.  I'm glad you posted this and provided insightful and right-on observations.


Posted by Carmen V. Rodriguez (Coldwell Banker Residential Brokerage) about 8 years ago

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