Mark A. Crain

It seems that everyone in the market to purchase wants to buy a foreclosure in Birmingham. Even first time homebuyers seem to think they have to buy a foreclosure in order to get a great deal. While there are certainly some great deals out there and foreclosures continue to represent a large segment of the market, one must understand the landscape of this sector before buying.

Before you buy a foreclosure in Birmingham, doing a little research can ease the pain and help manage expectations. First, there is the 12 month right of redemption which I will only briefly touch on here. People that have lost a home in Alabama have the right for 12 months to "redeem" it if they pay all balances due plus interest, penalties and "normal" maintenance. While the percentage of people that actually redeem is very low (1% or so), when you buy a foreclosure in Alabama, you are taking a risk that the previous owners will get it back. Even though it is unlikely, it is a reason for a partial discount from market. Keep in mind "normal" maintenance (as I call it), doesn't include improvements. If you "improve" the property during the 12 month right of redemption, if it is in fact redeemed, the prior owner has no obligation to pay your for it! When you buy a foreclosure in Alabama, work with an experienced agent and consider consultation with a good closing attorney to fully understand the risks.

For the first time homebuyer, before you buy a foreclosure (or before you begin the process), take time to understand the financing piece. If you have minimal funds for down payment / closing costs, you are limited in the number of available properties. First of all, given that you have minimal funds, you are not going to have a great deal of money to (1) buy a foreclosure and (2) fix it up due to deferred maintenance. Foreclosures are typically in poor condition for the most part necessitating investment in the property for painting, carpet, appliances, roofing, etc... that put a huge strain on any budget. And don't think that you can negotiate for the foreclosing lender to fix it up; they just won't do it most of the time. In many cases when you look to buy a foreclosure the amount of repair work is so great that a first time homebuyer can't even get financing since the lender won't finance a property with significant deferred maintenance. Also keep in mind, as a first time buyer with limited financial resources, your negotiating power is not that strong, especially when competing for a nicer home new to the market and priced right; you're competing to buy a foreclosure against potentially cash rich investors and the bank knows it.

Okay, if you aren't a first time homebuyer (and have some cash) and want to buy a foreclosure, consider that once you find a property you like, making an offer necessitates being patient. The seller (bank) likely will take 1-2 weeks before getting your answer. That is just the way that it is. And the old mindset of offering less than the list price may or may not be the best way to go. Again, engage an experienced agent when you think you want to buy a foreclosure and trust them! Experienced agents know the market and can give you feedback on what to offer. While it is your decision, treating your agent as an administrative offer writer won't do you a whole lot of good as you may end up making several offers and not getting a counter. Especially if you find a foreclosure in good condition that just hit the market,

The best way to get a good deal is to buy a foreclosure, right? Not necessarily. There is still a tremendous amount of inventory in the Birmingham area (see my previous blog entry). The old supply and demand principle applies; with excess inventory, there is downward pressure on prices. Added to that is the downward pressure created by the foreclosures themselves. In short, there are great buys throughout the Birmingham market and non-foreclosures are normally in better condition and involve less risk than when you buy a foreclosure. So don't limit yourself to thinking that buying a foreclosure is the absolute way to go to get a great deal!

For free lists of foreclosures (with photos) for specific areas, click buy a foreclosure. You don't have to pay for a list! I'll gladly send you a report via email under whatever criteria you like with no obligation.

As realtors, we typically look at assessed tax values when representing a buyer or seller as another piece of information to serve our clients' best interest. We know that doing a Comparative Market Analysis (CMA) for a potential seller has little to do with an assessed tax value, but we still look at it to corroborate our conclusion on what the list price should be or what a buyer wants to offer. I've often wondered how close the assessed tax values track sales over time so I decided to look for myself.

I decided that a reasonable approach would be to look at sales over the past six months (May 1, 2009 - October 31, 2009) and compare individual property sales prices to the assessed tax values for 2009. Here is what I found for two counties in Birmingham.

Jefferson County

% of homes that sold above the assessed tax value: 29.75%

% of homes that sold below the assessed tax value: 70.25%

Aggregate % sales price to assessed tax value: 88.65%

Shelby County

% of homes that sold above the assessed tax value: 42.76%

% of homes that sold below the assessed tax value: 57.24%

Aggregate % sales price to assessed tax value: 90.26%

While there are some differences between these two major Birmingham counties, it is interesting to note that they are both reasonably accurate in assessing values for the most part. In Jefferson County, however, homes are more than than 2 to 1 more likely to sell at an amount below their tax value than above. In both cases, in the aggregate, homes are generally selling for around 90% of their assessed tax value.

For a buyer and buyer agent, what this means is that you should ask why a property is significantly above the assessed tax value before making an offer. There are certainly plenty of cases where this may be appropriate and a thorough CMA can easily point this out. For a seller and a seller's agent, you should discuss the CMA in detail in light of a desire to price the home above the assessed tax value. For someone not involved in the purchase or sale of real estate, given the above facts, you may want to consider challenging your assessed tax value to save on the amount of property taxes you are currently obligated to pay when you get your notice from the county. You might be successful and save yourself some money! If, for example you own a home in the $300,000 price range, if you can get the valuation down 10%, you could save $300-$400 per year!

Wondering what you home might be worth? Go to free market snapshot to get a comprehensive free report emailed directly to you detailing listings and recent sales in your area. In summary, while assessed tax values are not absolute and don't absolve agents of their duty to perform detailed CMAs to best serve their clients, whatever the situation. But they are a pretty decent measure to look at when making your final analysis!

One of the most important things for families looking to buy is to determine the best schools in an area. Most people looking to buy in Hoover know that the school system is very strong. In fact, when we moved to the area several years ago looking for the best schools, people told us that you really couldn't go wrong with any of them which I think is probably the case.

Having said that, I have put together one way of determining the best schools in Hoover, which I think is pretty objective and independent and as good as any. I used the results of the SAT in each grade at each school for each curriculum (reading, math, language, etc...) for the year 2008-2009 and did a simple average to come up with a ranking. This results-oriented approach is only one way of looking at it and there are certainly other factors (e.g., quality of facility and staff) that determine the quality of a school but you can't argue with results.

at right, a photo of Greystone Elementary --->

Take a look at the chart below and you can see that the top-performing elementary schools in Hoover are Greystone, Riverchase, Deer Valley and Bluff Park. All four of these outperform the average for the Hoover system overall.

Before anyone starts to conclude that the schools at the lower end of the list are "bad" schools, keep in mind how all of these schools stack up against national and state averages. As noted in the chart explanation, the national average NPR is 50%. The Alabama state average, for example, is 58% NPR for 5th grade reading and 54% for 7th grade math. ALL OF THE SCHOOLS LISTED AT LEFT ARE SIGNIFICANTLY HIGHER THAN THE STATE AND NAIONAL AVERAGES!

Now onto to the three middle schools in the Hoover City Schools System. As shown in the chart below, of the three, the top performer USING THE SAT COMPOSITE CRITERIA I DEVELOPED is Berry Middle School.

Above: Photo of Bumpus Middle

I encourage you to get as much information on your own at alabama schools to make your own determination about test results and to visit hoover city schools to gather more information about the system and each individual schools. Paying them a visit is also a great idea.

So where do you buy if you want to get into one of the best schools in Hoover? Contact me at sold@markcrain.com and I'll be happy to provide you listings according to your criteria. Keep in mind though, if you are set on Hoover, you really can't go wrong with any of the schools!

The best way to evaluate the expected impact of the homebuyer tax credit for this area is to look at the past two years in terms of composition of closed business.

The past impact of the homebuyer tax credit for the Birmingham area can be seen in the sold terms categories of FHA, VA and Rural Development (RD). While the overal market decreased about 27% year over year, FHA business actually increased 23%! You also see significant increases in VA and RD. Clearly, the impact of the homebuyer tax credit for other segments of the market were zero and reflected the overall downturn in real estate generally.

The following two charts further illustrate the mix of business as detailed in the table above by year:

As shown at left, in 2007-2008, conventional business was nearly 2/3 of all closed business with FHA and VA combining for about 17%. RD was not even on the chart. As you may know, FHA, VA and RD are the categories associated with first time homebuyers although some go conventional as well.

As shown at right for 2008-2008, conventional business slipped to just under 1/2 while FHA, VA and RD all grew substantially. While there could be other factors involved, this clearly shows the impact of the homebuyer tax credit during this time frame. It is clear that the decrease in the market overall has been at the expense of conventional buyers.

With the extension and EXPANSION of the tax credit to include some buyers who were previously excluded, we as realtors expect to see a boost in the conventional category which represents homes that are priced a little higher that FHA, VA and RD despite the limitations (i.e., the 5 year rule). For a summary of the provisions of the homebuyer tax credit, go to tax credit. For buyers that have been in their homes for more than five years and within the income limits, the tax credit could offset depreciation experienced in the past 2-3 years. While it is difficult to estimate the impact of the homebuyer tax credit in the Birmingham market, suffice it to say that if we can get a boost in demand for higher priced homes approaching the market mix of 2007-2008, realtors and sellers will be much happier.

The good ones go quick even in the current real estate environment especially for foreclosures priced right. Contrary to popular opinion, there are actually some very good deals that come up from time to time that don't necessitate a huge discount. While we are still clearly in a buyer's market, some buyers continue to feel like EVERY seller out there is desperate and should accept any low-ball offer.

This couldn't be farther from the truth for some niche type situations. For example, if a home is priced right, in an excellent neighborhood (e.g., Bluff Park) and staged and marketed properly, it can sell very quickly. For foreclosures priced right especially, the good ones go quick is doubly true even though they are vacant and not staged. New buyers to the market need to understand that savvy buyers working with quality agents are ready to pounce on foreclosures priced right (at or below market in great condition). These homes are simply not all that common as bank-owned properties usually involve deferred maintenance that makes the home show very poorly and represents a financial drag on a purchaser's budget. Great condition foreclosures priced right are diamonds in the rough for aggressive agents. With a ready-buyer, agents are ready to show them and write up a reasonable offer. Seasoned agents will perform a detailed Comparative Market Analysis (CMA) to present an offer that has a reasonable chance of being accepted. Writing up any old low-ball offer on foreclosures priced right is time-consuming and can be very frustrating for the uninformed buyer who finds out later that someone else with an offer above the asking price got the deal.

As agents, part of our job is to educate our clients about the real estate process and making offers on foreclosures priced right requires knowledge and preparation. While we as agents are typically looking for buyers, it can be a challenge with some consumers who think they know more than they really do. It takes skill to gently tell a buyer that a proposed low-ball offer on a property is not likely to be accepted and probably will have multiple offers.

I had a prospect (not a client yet) inquire about a foreclosure listing recently and it had already gone under contract by the time she notified me. I had been stressing to this prospect the importance of getting pre-approved with their lender in order to be prepared. They found a foreclosure priced right and were not in a position to make a meaningful offer (or even get a showing) since most banks and financial institutions will not even consider offers without a pre-approval letter. Unfortunately, this property appeared to have all of the features and the location they were looking for and it was offered at a great price. In fact, this one likely sold higher than the listing price as it appeared to have multiple offers.

The old Boy Scouts them certainly applied to buyers: "be prepared."