MARKET – 19 NOVEMBER 2012

Mortgagee-In-Possession, In Receivership, Divorce, Bankruptcy Forces Sale, Bank Repossession, Overseas Vendor Quitting Market, Major Investor Consolidates.

Over the last 25 years I’ve read, watched, analysed, bought, sold and commented on the realities of the real estate market.

When the market was flat and really didn’t do anything for a while, there weren’t too many distressed properties for sale. You’d see the odd one here and there and some agents or salespeople would try and make a big song and dance, but it was generally quiet.

The market took off and a lot of people were making money hand over fist.  When a distressed property came onto the market, there was seemingly NO SHAME in announcing the fact that someone had died, a marriage was in ruins or a business was failing. Nothing was off limits when it came to exposure.

Quick story before I move on to today’s news.

I bought an apartment on the beach in those early days, just before everything went nuts. The sales guy, who had to act for his vendor or seller, and not me, was a moron.

The Unit was advertised at $239,000.00 and had attracted little interest as nothing was really moving at that time.  The very unprofessional salesman, in a last ditch effort to make me sign a contract, divulged that the owner’s business had failed, had been thrown out of the marital home and was living on a mate’s couch.

If I found an agent representing me had divulged that kind of very personal information, my lawyer would’ve been all over them like a rash.  This information was like a goldmine for me!  I made up a set of figures justifying my low offer (statistics, damned lies and statistics) and went to Contract at $120,000.00.  The sales guy went nuts and told me he wouldn’t take the Contract to his vendor.  I reminded him that he MUST under law, present all offers that were made in the form of a contract, especially as I’d attached a cheque for the $12,000.00 deposit.

I eventually bought the Unit for just $141,500.00.

The ONLY reason I thought that such a ridiculous offer stood a chance was the “Intel”, “inside information”, read “extreme breach of trust” the hapless, stupid and unprincipled salesman had given me in his desperate search for a sale.  At a sale price of say $219,000.00 he would’ve made about $2,000.00.  At the contract price he told me he made $1,350.00.  A $650.00 difference for him and $77,500.00 saving for me.

Remember this story when choosing your Agent.  Tell whoever you choose that if they divulge ANY personal information about you to a third party you will sue.

Back to the market.

The number of Mortgagee in Possession and Receiver forced sales is now at alarming levels.  People go through a gut wrenching process before their private homes, commercial properties or businesses are forced onto the market.  They explore every option, refinance, change from principal and interest to interest only, ask the banks for repayment holidays whilst they go through a seasonally difficult trading time.  Sadly, often times it doesn’t work and they’re dispossessed of their assets.

I’ve noticed a real change in the way these properties are being marketed, especially in newspapers.  Gone are the days of “MORTGAGEE IN POSSESSION” being emblazoned across an advertisement, enticing all to come along snare a bargain and profit on someone’s demise.

I have a wee hunch that maybe, just maybe the banks are putting pressure on agents to pull their heads in and be a bit subtle in this area lest we see a backlash and nobody buys anything.

Imagine having one or two For Sale signs in your street.  Nothing too wrong with that.

Sometime later and your street of 40 homes has six or eight For Sale signs.  People driving into your street to inspect one home they’ve seen and liked the look of are suddenly confronted with all these signs.  First question – What’s going on here?  Then, what’s wrong with this street, why are all these people selling up at once?

Imagine large “Mortgagee In Possession” signs everywhere.   Most people will be too scared to make an offer on the first lest the second and subsequent properties sell for less.  They’ll stand around and wait until someone else makes a move… and no-one makes a move.

Instead of “Expressions of Interest”, which to my mind is a complete waste of a marketing program, the Bank gets fed up waiting for a result and says “Right – Auction it”.

I’ve seen these situations smash values in an area with one fall of the gavel. Nothing has moved in an area and an auction finally drags everyone out for a look.  The Bank is no longer interested in a “market value” result; it just wants as much money back as it can get, as quickly as it can get it.

I watched one of these years ago where the Mortgagee Bank was located in the USA.

The owner of a very nice high floor apartment with marina berth had paid about $660,000.00, fell on hard times and bolted to the Caribbean.  On the advice of local agents, the US bank set a reserve of just $440,000.00.  The first auction failed with only a couple of bids up to $400,000.00 as people, naturally, being told it was a “repo”, tried to grab a bargain.

US bank not happy so they tried to chase down this fellow’s other assets in the USA and Canada.  Failing there, the Bank came back to the Aussie Agents and told them to go to Auction again.  They were not going to set a reserve on the spot but would make a decision on the day.

Auction day.  One bid at $200,000.00 to start, a counter bid and then another bid at $220,000.00. The US Bank was on the phone and said “We’re over it, take the money!”

A $660,000.00 high floor unit in a great building, with a marina berth, for $220,000.00 was a most unexpected result.  One happy bidder but the damage that one sale did to the values in the building was immense and it took many years to recover from that one anomaly, that one blip.

Back to the newspaper ads…  Take a look at the commercial section next time you open a paper, anywhere.  The words “Mortgagee In Possession”, “In Receivership” and so on, are no longer in large bold print.  They are mentioned, but in the same sized font as the rest of the ad and in a very “matter of fact” way, so as not to I think, spook the entire market.

I’ve included a selection from a recent newspaper here. None of the words are any larger than about 20 pt font. Most are quite a bit smaller and the ones in yellow in the far left hand top corner of the ads are barely readable.

The newspaper I’ve scanned these from had nearly 30% of ads saying, in one way or another, that the sale was under distressed circumstances.  Most people scanning these ads are going to sit on their hands waiting for the crash to come.  Putting these phrases on ads in times like this is counter-productive and is adding to the negativity in the market.

The market, as I keep saying, is very sick indeed and the plethora of distressed properties being put up for sale, both residential and commercial, is only going to increase.

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