Realty Check

Good deal? Or steal?

2009-06-08T10:43:20-04:00

Today it's Philadelpha, Saturday it was Boston, but yesterday it was New York. About 1000 people packed the ballroom of the Hyatt Hotel at Grand Central Station in Midtown Manhattan on Sunday, all trying to snap up a bargain on one or more of the 120+ houses up for auction. The houses on offer were from all around the metro New York area -- upstate, Staten Island, New Jersey, Connecticut. (Nothing in Manhattan, though -- which would surely have been a sign of a real estate Apocalypse). It was the second auction in this area for the auction company REDC, which previously sold more than $18 million worth of real estate in the NY area (about 200 homes) at auction in March. It was my first time at a real estate auction, and it packed as much drama as a Broadway play.

There were vocal protestors outside, organized by Bail Out the People (Bail Out the People - Not the Banks! is their motto...bailoutpeople.org). Spokesman Tony Murphy said they want a moratorium on all foreclosures and evictions. "These auctions are promoted as a good deal, as a way to put people in houses," he said. But what about the people who were living there already, he asked? "The media often writes that 'one person's misery is another person's gain,' but we say that an injury to one is an injury to all."

"Nobody likes to see foreclosures, they're an unfortunate event," agrees REDC's president, Jim Corum. Standing outside the circus going on in the ballroom, Corum tells me that all the homes being auctioned on Sunday are vacant, have been for at least 90 days, some for as long as two years. And from the pictures projected in the front of the room, the houses appear a forlorn lot. But buyers were snapping them up.

The tuxedoed bidding assistants were running up and down the aisles, flashing hand signals like a catcher. One caught my eye and winked -- it's amazing they can keep up with everything going on in their section -- the nods, the hand waves, the slight smiles that indicate bidding (did I mention that NOBODY raises their assigned auction number? Too obvious, I guess). "Sell it!" they yelled. "That's a lot of square footage for the dollar!" said the auctioneer, inbetween his almost-impenetrable price patter. "Time to take advantage!" said another. "What goes down always comes back!" From his lips to God's ear.

In the bare bones brochure, the properties look like wildly good deals -- bidding starts on some as low as $500, but within the space of five seconds (I timed it) they'd usually risen to $50,000 or $60,000. And that's where some stay -- a sad-looking frame house in Elizabeth, NJ went from $1k to $60k in three seconds flat -- but there it stalled, selling eventually for $70,000, though its previous value was listed at $260k. Hard to know if that was a recent value, or overheated pricing leftover from the go-go days of the market bubble.

Corum said most of the buyers were end-users -- about 80%, he estimated. Purchasers were sent to one of two places after their winning bids -- investors stayed in a roped-off area inside the ballroom (the better to be near the action), while those buying only one property were sent to a separate annex nearby. The annex was much busier.

Anita Walker from East Orange, NJ came to see what would happen to a vacant property near her. It sold for $42,500, despite being what she described as "trashed." "I have dual feelings," she said. "I feel bad for some families who lose their homes, but there are some really irresponsible people out there."

One winning bidder who agreed to talk (but not give his name) was a slight man, also from New Jersey, who paid $300,000 for a house he said was worth about $100,000 more than that. "My heart was pumping, my face got red, I was nervous," he told me of the bidding process. The house was an investment, he said. And though he's owned other investment properties before, he said this is the only one he'll have now.. "I try not to be greedy," he laughed, as he headed east on 42nd Street.

Leading By Example

2009-04-23T18:19:55-04:00

Back to Detroit again... where the real estate news remains deplorable. This round is not only deplorable, but shameful as well.

Turns out Detroit city councilman Kwame Kenyatta and his wife walked away from their beautiful home. I won't recount all the details in full here; instead, check out this Associated Press article. I interviewed Kenyatta when that other KK (former Detroit mayor Kwame Kilpatrick) refused to step down, so I wanted to get the story directly from him.

On the phone Tuesday afternoon, he said they had bought the house about four years ago, with an adjustable rate mortgage that had since climbed to nearly 7 percent and was scheduled at the end of 2008 to adjusted upward again. Apparently it had a cap of 11 percent. At the time they abandoned the home they were paying about $2,600 (he said that includes principal and interest, PMI, taxes and insurance), and it was headed up to over $3,000.

Kenyatta said his wife contacted the bank (the house is in her name) before the rate adjusted upward, asking what they could do to bring it down, considering rates now are just south of 5 percent. She says they were told they did not "qualify for any programs," because they were paying their mortgage on time and had not missed any payments. He says they asked about a deed in lieu of foreclosure, and was told they should sell.

Sell? In Detroit? Not for the $225,000 they originally paid, or for the $204,000 he says they still owe. Backing up here a second, he also says theirs is not the only house on the block in foreclosure. Judging from what happened with a nearby home, he said, he knew his would go for less than $100,000 -- if it sold at all.

Still, I couldn't believe that a city councilman, someone elected to serve and care for the city, could walk away from his home, his neighbors, his community. Kenyatta said they weighed their "personal situation," and they were facing rising payments on declining value. When asked what kind of message that sent to his constituents he said, "I stand on my public record which is untarnished. My ability to deal with public funds has never been called into question."

As he's considering a run for mayor, or at least wants to hang on to his council seat, I wonder if the voters in Detroit will see it that way?

Getting Dirty at the White House

2009-03-20T13:27:02-04:00

First Lady Michelle Obama is getting her hands dirty -- and I applaud her for it. In overseeing the planting of a vegetable garden at the White House today, the First Gardener is setting an example. Like many commenters posting to the wonderfully comprehensive article on ABCNews.com, written by Kate Barrett and Brian Hartman, I don't think she'll be out in the garden of an evening, tilling, weeding, and composting. Nor should she -- there are many other projects that need her attention. But she's gotten the nation talking about kitchen gardens, Victory Gardens, whatever the modern-day incarnation is.

I have often marvelled at the amount of time we spend on our lawns -- cutting, edging, fertilizing, seeding, weeding -- endless amounts of energy for our big broad lawns, and for what? They look good, but they give nothing tangible back. You can't eat 'em, can't share the bounty with your friends and family. Why not put some of that time and effort into a vegetable garden and be rewarded for your hard work? There are many who already have, as Brian Rooney showed us in his Nightline piece from February 26th in Los Angeles, and I suspect a movement will be in full bloom now.

My cousin in St Louis is helping a needy family with six children, and I just suggested to her that one of the greatest things she could do for them is help them plant a vegetable garden. Last weekend, they moved to a new rental in the city -- a house with a lawn! -- so how perfect would it be if they took up part of that grass and planted some of the fresh foods they otherwise could not afford? It will also teach young city kids some important lessons, not least of which is that instead of feeling helpless and hopeless, they do have control over some aspects of their lives.

So kudos to Mrs. Obama for taking the lead in this. Alice Waters has been encouraging backyard and school gardens for years... Michael Pollan has been leading the charge, and countless Americans have been quietly toiling away on their "shovel ready" projects every spring. They know the joy of picking and eating their own spinach, carrots, beets, zucchini, and yes, the ubiquitous (and fantastically flavorful) tomato. I only wish I could join them, but with no outdoor space at my apartment in New York City, I'm limited to little bits of rosemary and basil grown in pots on the kitchen windowsill. How many of you with backyards and grass and sunshine will follow the White House lead??

How Greed Killed Suburban Federal

2009-02-24T13:50:04-05:00

Last Friday I was in Fort Meyers, Fla., shooting a piece on the foreclosure court there. Watch the report, which we crashed for air Friday night:

Toward the end, the real estate agent we interviewed started telling me how the government is responsible for the mortgage mess because it forced banks to lend to people who really couldn't afford their homes. Through the use of clever editing, you don't see the steam bursting from my ears or the top of my head blowing off.

Why? Because hearing this kind of nonsense just makes me crazy. The government FORCED banks to make risky loans? To become greedy? To start selling mortgage "products"?!

No. No. And no again. Where do people get these ideas? Never mind.

I kept my cool during the interview, but afterward in the "two-shots" (TV talk for the wide establishing shot), I let that poor guy have it. He's into the Kool-Aid on this subject, and needed schooling. I delivered an on-the-spot lecture, then e-mailed him this superb article from the Sunday Baltimore Sun on the anatomy of a bank failure.

Imagine this bank multiplied MILLIONS of times across the country during the housing bubble and you will begin to comprehend the origins, scope and magnitude of the problem. Just so you know, I recognize that the home buyer in the article who filed suit should have known he could not afford that house, so he's as much to blame as the bank. But Suburban Federal was not doing the government's bidding in making that loan.

Read, please, and then let's discuss.

Fort Myers: 'Perfect Storm' for Foreclosures

2009-02-10T11:44:53-05:00

President Barack Obama takes his pitch on the road today to Fort Myers, Fla., an area hit hard by unemployment and rising foreclosures.

My younger brother Les lived in Fort Myers many years ago, and I thought it was such a lovely place so I was stunned to hear that. I went online to check www.realtor.com for Fort Myers -- or more precisely, Lee County, which includes Fort Myers, Lehigh Acres, Cape Coral, Bonita Springs, Boca Grande, Estero, Pine Island and Sanibel and Captiva Islands. The entire county isn't devastated -- there aren't many foreclosures on tony Sanibel and Captiva; thank goodness for small mercies -- but in some other areas, I found houses that cost less than cars.

A number of the bank-owned properties were being handled by a real estate agent named Lynn Rhinehart, of Quest Realty Solutions. I caught her at home in Cape Coral Monday afternoon, in fine chatty form. Lee County, she explained, became a "boom place like Vegas." House prices were growing by an incredible (but unsustainable) 30 percent a year from 2004-2005 and 2005-2006. "It was awful," Rhinehart said. "It put buyers in [a] frenzy."

It put builders in [a] frenzy as well, Rhinehart says. Contractors became so busy they were begging subcontractors to come from elsewhere to work for them. And they came in droves. "Have hammer, will travel," Rhinehart said.

What those subs discovered is that it was a nice community, a nice way of life, so they brought their families and settled in. "They were making good money, working seven days a week, 12 hours a day," Rhinehart said. Many couldn't have qualified for a loan under the old conservative lending rules, she says. But at the time, lenders were handing out " low doc " and " no doc " loans to anyone who could , as Rhinehart put it, "prove they had a heartbeat and a credit score over 600 . It was a perfect storm."

Add to that some of those subcontractors graduated into contractors, putting up their own subdivisions and offering deals because the competition was so fierce. Plus, they had to live somewhere, so they were buying, too. House prices were flying upward and Rhinehart says it scared many people into jumping on the bandwagon at more than they could comfortably afford, because they were afraid that if they missed the moment, the prices would go even higher.

Then, the bottom fell out. "In September of 2005 we woke up one morning and the phone didn't ring anymore," Rhinehart said. "It was like someone went to the garage, found the real estate breaker and turned it off. We've been looking for that breaker ever since," she said with a sigh.

In the boom times, builders would let buyers put down a $1,000 deposit and not pay in full until the house was finished. But homes that had been started in the boom were worth much less than the contract price in the year or so that it took for that home to be built. "If you signed up at [the] end of '05," Rhinehart said, ”by the time the house was ready it was worth $30,000 or $40,000 less than you agreed to pay. The builder says, 'your house is done, let's close.' But the appraisal comes in $40,000 under the contract price and the bank won't lend the full amount, so you can't close without that $40,000 in cash. It made it awfully easy to walk away when you put down just $1,000."

And apparently that's what buyers did, in droves.

"Builders got armloads of [houses] back, they were sitting on 30, 60, 90 houses," Rhinehart said. "Small little guys who three years before were subcontractors for somebody else. It was awful, watching prices drop, people making lower offers that the builders wouldn't accept even though prices were still tumbling."

Those builders and subcontractors and the buyers have gone now, she says. Those who are left are trying to make the most of a very bad situation.

Still, the area doesn't feel like a ghost town, according to Rhinehart. Some blocks may have four or five foreclosures, but others are still intact. It's sad to see people lose their homes and move away, but if we need an upside, there is one... sort of. Prices are so low, Rhinehart says, that out-of-towners are starting to come in, looking for deals. "Places that would have sold for $180,000 a few years ago may be listed for $80,000," she said. "Some are new, most are new-ish, but some have never been lived in."

How are these new breed of buyers paying? With cash, Rhinehart says. "I never saw so much cash," she said. "When you get to $50,000, $60,000, $70,000, they can pay in cash." Rhinehart says it's "heartbreaking" that the people who lost homes can't take advantage of the market change – “if you lost your house you just shot your credit in the butt; it'll be years before that's forgiven," Rhinehart said -- so it's out-of-towners scooping up the deals.

With a certain resignedness, Rhinehart says that for her and her business partner (her stepson), business is good because they handle a lot of bank-owned properties. This may or may not be a good sign, but some houses have sold for more than the asking price. Prices have gotten so low there are multiple offers.

The house pictured at the top is in Cape Coral; it sold in May of 2005 for $190,000. When it went on the market recently for $70,000, there were six offers on it. The house pictured here was purchased in 2005 for $385,000, and received 14 offers when it went on the market for $116,900. Cape Coral assessed it at more than $220,000. It sold last December for $134,000.

Rhinehart says she doesn't know what the president has in mind for the economy, but she hopes whatever it is, it works. Will she go see him Wednesday? "No," she said. "I'm going to work tomorrow. I'm hoping to sell two more houses."

That's probably the best stimulus of all.

A little Christmas present from Odell Barnes

2008-12-23T15:05:05-05:00

Bad news out today about the housing market: sales of single-family homes down 8 percent in November from the previous month, and the median price of a home down 13 percent from the same time last year. Not a pretty picture. But if you're looking for a modest home -- nothing fancy, just a little something to call your own, and a place with affordable payments, you can check out Odell Barnes' website, RECA Properties.

Right now he and his investors have about 300 homes available in 26 states -- Ohio, sadly, has the dubious distinction of being Number One on the list with 106 available properties. Indiana is next with 34, and Michigan has 32. States with the fewest listings at one apiece are Minneapolis, Iowa, and Maine. Florida shows three homes, but apparently it's only two, as one is listed twice. (And forgive me, but that one looks more like a garden shed than a house. But pictures can be deceiving).

Since our last story with Barnes, he has met with Fannie Mae and may have another meeting coming up in the new year. When that happens we will let you know. In the meantime, happy holidays to you all. Maybe there's a new (old) house in your future.

On Fifth Avenue with Tim Gunn

2008-11-25T17:01:46-05:00

I know this is the Realty Check blog, but stay with me here. Bad subprime mortgages led to financial market meltdown which led to fashion retrenchment (no pun intended), and that leads to my shoot with Project Runway guru Tim Gunn on Fifth Avenue.

First of all, let me say I had to do a weekend of cramming: Six episodes of Tim Gunn's Guide to Style, followed by four of Project Runway Season One. (p.s. I am now hooked, and want to play hookey in my pajamas to watch more). But Tim Gunn is exactly as you see him on TV: charming, regal, impeccable, unflappable, feels like you've known him forever five minutes after you meet. He is, in short, one of the nicest men on the planet. If he's ever yelled at anyone or misbehaved in public, please don't tell me.

So what did I learn? That one of the most famous shoppers in the world is worried about the state of retail this season. As we strolled the Avenue, Tim pointed out the emptiness of the stores we were passing. And the lack of "Sale" signs in the windows. Once inside, there were discreet signs -- but nothing on the outside to lure you in. "I'm surprised they don't have signs in the window because how do you get the customer in?" Gunn asks, rhetorically. "It's very important to get them in and in my experience, not (just) on Fifth Avenue--which is a tourist destination and there are a lot of people here just to look around--but in my experience in other cities, it's gloomy. And you could have a party for 1000 people in a lot of those retail environments because there's no one there."

Ouch. A lot of places did look like empty ballrooms, with staff talking amongst themselves because there were precious few customers inside. It was a different story in Saks Fifth Avenue, though, where we were allowed in with our cameras to have a look around. Business there was, well, busy. Plenty of customers at least looking. "I hope they're buying," Tim said.

I asked him about his 10 items that should be in every woman's closet. We still need them, he says, and now may be the best time to buy. "I'm very budget-minded in general," he says. "You could buy the 10 essential items -- good quality -- you could probably purchase them for $1500." But this season? "You could probably purchase them for $750," Gunn says with a rueful laugh.

Look for classics, he says. And he expects designers will produce upcoming lines with an eye toward good value. "If they're astute, they'll be trend-aware and design with that lens or through that lens," he says. "But they will not be trendy because that gives their product a shorter shelf-life, and in this day and age, people want to feel that they're making an investment in something that will last them more than one season. Otherwise, if you're paying for disposable fashion it better be at a disposable price."

So how good are the bargains?? Well, that depends on your point of view. If you had your eye on a Ralph Lauren croc-embossed leather jacket, now's the time to buy because it's 40% off. However, for lots of people, even at a 40% discount, the price of that jacket is about the same as next month's mortgage.

The Hidden Costs of Homeownership

2008-11-21T12:53:49-05:00

In our Odell Barnes piece Tuesday night on Nightline, we showed pictures of a variety of houses. Tiny neat bungalows... a lovely brick cottage... a moderate-sized brick tudor... and a beautiful salmon-colored brick colonial, measuring 5,000 square feet, that is vacant and has been reduced to $99,900. I don't live in Detroit but when I see houses like that, at the prices they're going for these days, I think about buying and visiting on weekends. I mean, who doesn't dream of owning something that grand! Especially when you live in a New York apartment.

But then reality sets in. The taxes on that house are an OUTRAGEOUS $32,000. Yes, you read that right. And that's per year. I checked taxes on other foreclosed homes in the same neighborhood (some larger, some slightly smaller), and they're a fraction of that. Still high, but lower. Say, $10,000 to $15,000. The city must have made a mistake on this one. But potential buyers learn they have to buy it, then fight City Hall. So far, none has been willing to take that on. Who does the city think is going to buy first, then ask the $32,000 question later? The city has to make taxes in the Palmer Woods neighborhood, where that house is located, more equitable. If they want professionals to come back to the city and buy up these amazing houses, they have to make it affordable. Otherwise, they're taxing people out of town.

But I digress. Being as how that house is in Detroit, and Detroit is very cold, think of the heating costs: $$$$$.

The house looks like it was built in the '20s or '30s, so it will require updates and maintenance: $$$$$.

It's also on a large lot -- think lawn care: $$$$$.

It has a three-car garage with what looks to be an apartment above it. More $$$$. That's when the dream hits reality.

So if those of you who wrote in also are fantasizing about owning a manse like that, snap back to reality before plunking down your money. For those who watched and dreamed of something more modest, more like the size of the homes Odell Barnes gets in his inventories, good things may indeed come in small packages.

Response from Odell Barnes

2008-11-21T11:29:17-05:00

Apologies... We posted Odell's response on Thursday, but in a hard-to-find spot on our site... Here it is today, hopefully where you would expect to find it... VM

I appreciate all of the messages you have posted to the story that aired on Tuesday night. This housing crisis is creating unprecedented numbers: an overwhelming inventory of houses and an equally overwhelming response. While it is impossible for me to respond to everyone individually, I work with a number of investors in different parts of the country, like Abner McWhorter in Detroit, and we will try to help as many people as we can.

Thank you,
James Odell Barnes
odellbarnes2008@yahoo.com

Odell Barnes to Respond Tomorrow

2008-11-19T18:59:05-05:00

We at ABC News and "Nightline" are both heartened and saddened by the number of responses we've received to the story we aired last night on real estate investor Odell Barnes. Heartened because we love hearing from you and knowing that you're watching. Saddened because so many people are in need of good, affordable housing, particularly in this tight market.

What we've done is ask Odell Barnes to be our guest blogger tomorrow, Thursday, November 20th, to write a message responding to all the people who've written in. He's not great with a computer, but says he'll have his wife type something up tonight.

I can also suggest that you Google "REO listings" to see foreclosed homes available through large lenders. "REO" stands for real estate owned. HUD has a website, Fannie Mae has a website, many major banks have websites where you can enter your area, the number of bedrooms and bathrooms required, and your preferred price range, then see what they have on their books. It's not the same as the Odell Barnes method, but it's a place to start.

In the meantime, please don't try to find Barnes' phone number -- he says he can't handle the volume of calls as it is -- plus, there's at least one other Odell Barnes in the phone book, who's not happy getting calls for that other guy.