Pool of bargains small but gaining.
Just for clarification, Eugene is not Las Vegas.
Nor is it Phoenix, Ariz., Southern California or Florida.
Yes, cash-rich bargain shoppers in some of the most depressed real estate markets of the United States are picking up homes at foreclosure auctions - as well as before or after them - for as little as 50 cents on the dollar.
No, Eugene is not one of those markets.
Real estate experts agree there are a handful of bargains to be found in Lane County's gradually expanding pool of distressed properties. But for the most part, prices are not being discounted to levels that will translate into instant equity for owner-occupants or quick-flip windfalls for investors.
"I think the buyer interest has increased, but it has increased because they think they can get (distressed properties) for cents on the dollar," Eugene real estate broker Elliott Braaten says. "That's a false hope. If anything, (banks) are more eager to get as much out of them as they can."
Braaten and fellow broker Bill Skillern are agents for John L. Scott Real Estate in Eugene, and together operate a niche within the agency called EugeneREO.com. They specialize in so-called "real estate owned," or REO, properties that have been repossessed by banks at foreclosure auctions.
Other local real estate agents say there also has been heightened interest in "short sale" real estate deals, in which homeowners who are behind on payments and seeking to avoid foreclosure allow buyers to negotiate with mortgage holders for a price that's short of the balance owed on the mortgage.
And a handful of investors are sifting through the properties headed to foreclosure auction and picking up the few that can be had at well-below-market prices. They clean up the properties, make whatever repairs or improvements are necessary and turn them over.
"Every time we get a new property, we mark it up 10 percent (above purchase price and other costs) and put it out on our e-mail alert," says John Helmick, CEO of Gorilla Capital in Eugene, a company that specializes in buying houses at foreclosure auctions and reselling them.
"We price our properties well below everything else comparable out there on the market," Helmick says. "We sell them cheap, because we buy them cheaper."
A current example is a house on Royal Avenue in Eugene, which was on the market a year ago for $209,000. Its previous owner purchased it in December 2004 for $156,000 but defaulted on his mortgage. Gorilla Capital picked it up at a foreclosure auction in September for $137,613, according to Lane County property records.
Gorilla is preparing to resell the home for $175,000.
Helmick says it was a relatively rare case in which a house could be purchased for essentially the amount of its overdue first mortgage, while a second mortgage of $32,000 "went away" in the foreclosure transaction. If secondary or "junior" lien-holders do not take action to protect their positions in a foreclosure, the amounts owed to them are lost.
Only a third of all properties that head into the foreclosure process make it all the way to auction, because they're sold either in short sales or in conventional deals, Helmick says. At least 80 percent of the properties that do go to auction wind up going back to the bank - usually for the amount of the mortgage.
"We buy two to three houses a month in Lane County, and 10 to 12 a month in Oregon, compared to 300 a month that are sold to banks," Helmick says. "So we're cherry-picking; we get the cream. We're getting the deals that are absolutely fantastic deals."
But both local and national experts caution casual investors or private home buyers about the potential pitfalls of buying distressed properties - whether before, during or after foreclosure auction.
The complicated negotiations in short-sale deals can drag on for months. By some estimates, no more than 20 percent of them go to closing. Foreclosure auctions also involve complicated procedures, and usually require cashiers checks for the full amount of the winning bid.
REO transactions for properties repossessed by banks are usually considered the safest and least complicated option. But red-hot deals usually cannot be found until a property has been on the market for three months or more.
Trulia.com, an online real estate search engine, recently contracted with Harris Interactive for a survey on attitudes about purchasing foreclosed homes. More than half of those surveyed said they would consider buying a foreclosed home, but 70 percent cited potential negative aspects, including hidden costs and undue risks.
"What's striking about these findings is that while U.S. consumers recognize the purchasing opportunity presented by foreclosed homes, there are definitely some reservations about the process," Trulia CEO Pete Flint said when releasing the survey's results.
He recommends consumers get involved in foreclosure transactions only after obtaining solid background information on the property involved, ordering prepurchase inspections of the homes and consulting with a real estate agent or attorney who is experienced in such deals.
Braaten, the John L. Scott broker and partner in E ugeneREO.com, says the majority of those purchasing bank-owned properties in the Lane County market are buying homes for themselves.
But he says foreclosure properties - even those repossessed by the bank - can be rough around the edges, whether neglected by previous owners or situated in undesirable neighborhoods. And he strongly recommends that buyers work with a real estate agent who is familiar with the foreclosure and REO processes.
"I'd prefer that they're counseled by someone experienced in selling bank REO properties," he says. "(These) are by nature a different animal than owner-buyer transactions."
Braaten acknowledges the REO end of his business has increased significantly over the past year. He's sold 45 repossessed properties so far this year, while his annual total last November stood at 15.
He's also getting anywhere from one to five new listings each week from the banks he serves, for a current total of at least 50 REO properties for sale.
"I'm not selling that many," says Braaten, pointing out that paperwork requirements are greater and agent profits are less on bank-owned properties than on conventional real estate deals.
"I'm selling a few, but they're coming in a lot faster than they're selling," he says. "The funnel coming in is a lot bigger than the funnel coming out."
The main reason for the backlog is that banks aren't motivated to dump properties at steep discounts in a market where home prices didn't rise as dramatically as in some other areas of the country, and as a result haven't fallen as precipitously.
Distressed homes are typically priced at the bottom end of the market for comparable properties, Braaten and others say. But banks usually take possession of homes at foreclosure by bidding the amount they are owed on past-due mortgages - often issued at close to 100 percent of the homes' value - and aren't likely to accept steep losses without first trying to recoup the full loan amounts.
Banks must document their attempts to recover as much as possible of their bad loans, so they usually won't consider offers that are more than 5 percent below their asking prices, Braaten says. But if a house doesn't attract any offers for an extended period after it's repossessed by the bank, its price can become much more fluid.
"Somewhere after 90 days on the market, (banks) become more motivated," he says. "For some it's more (time) than others, but it seems like about 90 days is the trigger point."
Dennis Harlow of All State Real Estate in Springfield is another local broker whose listings include a large number of bank-owned properties. And he says more real estate agents are looking to get involved in the REO niche.
"Foreclosed properties are definitely picking up," says Harlow, whose office staff has more than doubled in the past year. "There are probably six other Realtors in town who are trying to get their foot back in the door."
A drag on prices
Harlow says his biggest concern about the increase in foreclosure sales and bank-owned properties on the market is their potential effect on overall home prices.
As the number of local REO properties rises, their average length of time on the market will increase, he says. That will prompt banks to lower asking prices, which in turn could drive down the prices of comparable homes on the conventional market.
"The thing that worries me is when the repo is priced at the bottom of the market and we have no offers," Harlow says.
"The repos tend to underprice other homes in the area - that's just the nature," he says. "(Banks) are not going to just sit on them, so the repos do have an effect on (real estate) values."
Braaten has a similar concern, based on the upward curve of distressed homes coming onto the local market. He's grateful to have plenty of business, but fears that it may portend a difficult stretch ahead for others.
"Historically, the Pacific Northwest is the last to feel the effects of a national recession - and the last to come out of it, unfortunately," he says. "So I think we're just heading into some tough times here."