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Repossessed Miami homes so much in demand that supply vanishes
By Marilyn Bowden
Low pricing and a good rental market have made REOs — properties that have been repossessed and put back on the market by lenders — so popular with investors and end-users alike that a lot of the inventory has been absorbed, brokers say, a necessary step for a return to a healthy market.
"Right now, there's less than one month of REO inventory," said Christian Kawas, co-principal of SoBe Luxury Homes, a division of Douglas Elliman Florida. "There are 356 single-family homes and 342 condos listed as REOs on the market, and they are selling at the rate of about 845 a month."
So far this year, he said, more than 10,000 have sold, which could mean that by the end of 2011, last year's total of about 11,000 REOs sold will be surpassed, assuming enough product remains to sell.
"If you're an investor with $500,000 or $1 million to spend, which is what the majority of them have, and you want to buy a few foreclosures, you can't find them," Mr. Kawas said. "There are multiple offers on everything, and so they tend to go for more than the asking price. If you really want one, you need to have your Realtor set up an alert and, as soon as one comes on the market, submit an offer sight unseen and then go see the property."
Low pricing is a large factor in the popularity of REOS, he said. Of the 698 current listings, 75% have asking prices under $200,000 and only 30 are over $500,000.
"Part of the reason for the low pricing is that some banks are hiring mass brokerages instead of local brokers who know the market," he said, "and selling for way under market value. Every client I've worked with would have been happy paying 15% to 20% more.
"I would imagine there's a lot of shadow inventory, but I think in the next wave lenders will realize that if they wait a little longer, they can sell them for 7% to 15% more."
Another driver is pent-up demand, Mr. Kawas said. Most remaining REOs are not in the more desirable waterfront areas, but they are nevertheless selling.
"If there were another 10,000 come on the market," he said, "there would still be enough buyers." "REOs sell because they are priced right," said Melanie Hyer of Keller Williams Realty.
Lenders have been holding back on putting them on the market over the past nine months, she said, and the inventory that has trickled out has been absorbed as soon as it comes on the market.
"As long as a whole lot doesn't come on the market at once, it will be fine," she said. "There's more demand than supply in certain areas."
And even if they wanted to, she said, banks don't have the manpower to release thousands of properties at once, so the risk of an avalanche is slim.
The decision by many lenders to take offers from end users only for the first 15 days is making it harder for investors to get properties, Ms. Hyer said, but the rental market is so good that investors are still actively looking to buy. "Miami is not really a national market anymore but an international one," she said. "We're tapping into whoever has money in the world."
REO inventory in coastal areas is way down, said Lori Fein, a Realtor at Prudential Florida Realty.
"My biggest challenge with buyers today," she said, "is finding them well-priced properties to show them.
"In Aventura, for example, in the first six months of 2010 almost 60% of condo and townhouse closed sales were either short sales or foreclosures. Right now, only about 16% of listings for sale in that category are distressed sales."
The low price tag carries risks, Mr. Kawas said, since some REOs require extensive repairs. "It's a good idea to have an attorney shadow the file and represent you," he said, "because some insurers will only insure to the price you pay for the property, and in some cases the buyer could be liable for the former owner's debt.
A good inspection is also important, Ms. Hyer said. For example, chances are any new development in South Florida may have Chinese drywall, requiring expensive remediation.
But the demand for REOs is a healthy sign for the future of the local housing market.
"The demand is still there, and if more homes and condos came on the market, buyers are standing by," Ms. Fein said. "The sooner the REOs are absorbed, the sooner market values can stabilize, which can be better for everyone."
