Pigeon Forge, TN

February 14th marked the 8th annual Cure Finders Valentine's Dinner and Dance to help fund research for Cystic Fibrosis. The past few years, Brooke and I have been volunteers to the dance and charity event located at the Convention Center next to the Music Road Hotel in Pigeon Forge. Each year it has been a positive experience seeing our local community get together and help donate funds for the research of Cystic Fibrosis. It is dear to our hearts as Brooke's boss at the City of Sevierville, Jim Deanda, has two kids (Callie and Cale) with Cystic Fibrosis.

This year, I had two clients to work with on Valentine's Day and the day of the event, so I was a bit worried how I was going to fit it all into my schedule. I met with one client at 8:00 am which is pretty early to show property around here - the rental office at Sherwood Forest Resort where I was to show him a couple cabins was closed, but luckily there was someone there early that gave us access to the gated community. Once I had finished with the first client at around 11:00 I had another couple to show cabins. After looking at several cabins in various communities I was then able to head over and change into my suit to attend the dinner/dance. Brooke had been there since noon help setting up for the event, so I felt bad not being able to assist with setup, but glad to make it nonetheless.

The event was attended by several groups, businesses, and individuals in our area - including our local US Congressman, Phil Roe as well as local Senators. I distinctly remember meeting Congressman David Davis in previous years of the event, so apparently it has become a tradition of our representatives to attend the function.

Being Valentine's Day, Brooke and I had decided our exchange of gifts this year would be to bid on a silent auction item that we thought each other would like. We ended up winning a couple auction items that went to help fund additional research to Cystic Fibrosis. She ended up getting a pair of sterling silver black onyx earrings and she won a Robert Tino painting of Lady Vols coach Pat Summitt autographed by both for me! I tried to make up for me arriving late by helping disassemble things for the event - we ended up leaving at about 1:30 am!

Gary Woods Photography is a regular at the event and is kind enough to donate his time and skill to taking photos of people at the event and mailing them to the attendees. Last year the photo of Brooke and I turned out great and we look forward to ours again this year!

It was great to see even in these difficult economic times people extending a hand to help such an important cause! We will definitely be back next year for the 9th annual event and I encourage anyone else able to make it to attend as well! The Cure Finders Cystic Fibrosis Foundation also holds a sporting clays tournament along with a motorcycle ride sponsored by Harley-Davidson each year as well, so make sure not to miss those events either!
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The real estate market in Sevier County has unquestionably been impacted by foreclosures and short sales of cabins. A large portion of the cabin sales, approximately 40%, have been either foreclosures or short sales. Among these foreclosures many were purchased at what I would consider bargains and some others were more along the lines of a typical selling price. It is vitally important to ensure the cabin is appropriately priced for a foreclosure before making an offer. I have seen some foreclosure cabins that are priced no more competitive than regular sales, yet have sold quickly on the market. I think part of this is attributed to when someone sees "foreclosure" they automatically assume it is a good deal. While this is often the case, it is not necessarily always true.

The majority of foreclosures are centered in a few developments. Notably, those that were developed in the 2005 to 2007 time frame when the "building boom" was happening in Sevier County. Prior to 2005 the number of cabins in the area was not sufficient to accomodate the numbers of visitors to the area and people looking to rent a cabin. When 2005 rolled around and several large developments were created the supply versus demand changed and did a 180 degree turn. Each of these developments had somewhere between 100 and 400 cabins and these cabins ended up stealing away much of the market share of visitors. They were after all, new and had the amenities and lavish furnishings that visitors desire. This caused the older cabins to see a dramatic drop in their rental revenues. While many of the owners of the new cabins did in fact see good rental histories, they also paid outrageously high prices for the cabins and made it difficult to sustain a positive cash flow. Especially considering the utility costs, taxes, home owners insurance, and HOA fees within the development.

The developments with the largest number of foreclosures and short sales are listed below. Most of these all have a common denominator of being developed in the 2005 to 2007 time frame and are PUD's (Planned Unit Developments) with the cabins "stacked on top of each other". The exceptions to this rule are Sky Harbor and Chalet Village. Both of these developments are experiencing a high rate of foreclosure. This can be attributed to them both being older developments with some properties that are dated and not producing the same level of income they once generated. Also, they are both massive in size with over 1,000 lots each, so there are going to be foreclosures in the developments even in good times. For the most part, both developments feature entry level cabins where some smaller investors/owners "dipped their toes in the water" and ended up finding the water was much deeper than they thought and could handle.

Developments in the Smoky Mountains with the most Foreclosures

• Alpine Mountain Village - Pigeon Forge
• Bear Creek Crossing - Pigeon Forge/Sevierville Area
• Black Bear Ridge Resort - Pigeon Forge
• Brothers Cove - Waldens Creek area
• Chalet Village - Gatlinburg
• Covered Bridge Resort - Pigeon Forge/Waldens Creek area
• Hidden Springs Resort - Pigeon Forge
• Mountain Shadows Resort - Gatlinburg
• Settlers Ridge - Gatlinburg
• Sherwood Forest Resort - Pigeon Forge
• Sky Harbor - Gatlinburg/Pigeon Forge Area

While there are several other developments that have foreclosures, they are more of a case by case basis. The most difficult type of foreclosure to find is a cabin located on acreage that has been foreclosed. They are in high demand and there is very little selection of quality cabins on acreage within our MLS, let alone foreclosure cabins.Prices of foreclosures are typically around 60% to 70% of the original selling price of a cabin. This can vary dramatically depending on the development and how hard it has been hit by foreclosures and how much the owners "overpaid" for the cabins in the first place. For example, I just sold to one of my clients a 6 bedroom, 6.5 bath foreclosure cabin in Black Bear Ridge Resort for $295,000 that originally sold for $760,000. The original selling price included furniture, while the $295,000 did not, but still it was purchased at 38.8% of the original selling price and approximately $63 per square foot! With these numbers there is no doubt in my mind they will be receiving a good positive cash flow.

Other properties have come up in the market that are unquestionably good deals. For instance, there was a cabin in Sherwood Forest Resort that originally sold for $370,000 (furnished) that had a listing price of $129,900. This cabin was originally listed at $189,900 and once the listing agent had the large $60,000 price drop it immediately received a lot of activity and multiple offers. The cabin is 1,560 square feet with 2 bedrooms and 2 baths with a spectacular view of the Smoky Mountains. Comparable properties in the development have gross rental incomes of between $35,000 and $40,000 conservatively. The amenities of the development are attractive to visitors - with the gated entry, community swimming pool, large conference center/lodge, and absolutely stunning mountain views.

It is a good opportunity now for investors to purchase certain foreclosed cabins in the area. I feel most of the cabin prices still have some adjustment downward because they do not create a positive cash flow. There are definitely properties out there though that perform well and I do my very best to locate those properties. My website has a foreclosure page that I update daily with all of the new foreclosures on the market and price changes of the properties. It is a good resource to use to help identify some of the better priced cabins available. While not all of the cabins listed as foreclosures and short sales are great deals, several are.

I suppose I'm an eternal optimist. I do think the best of people more often than not. I have to admit I was really excited when one of my agents was asked to do an interview for the local ABC affiliate.

The story was supposed to be about how some absentee property owners here in the Gatlinburg and Pigeon Forge areas were taking the rental income from their overnight rental properties and using it to pay their mortgages on their primary residences (lots of them are in Florida). Thus, creating a situation where mortages on their second homes/investment properties here are going into foreclosure or short sale and creating opportunities for the savvy investor. A complicated story I suppose.

The report ended up highlighting the foreclosure/short sale portion of the story. Leaving out what I think most of the interview was about, the investor deals. I know editorial freedom is always going to be part of a news story (I've submitted my share of articles to the newspaper to barely recognize them when they were printed) but I had high hopes, perhaps too high, that this story would end on an uplifting note. Primarily, that our properties here have an inherent value that is not entirely determined by outside forces due to the rental income they produce.

I have received several questions from clients regarding the current state of the real estate and rental market here in the Smokies. I thought I would post my analysis for all to see regarding the Sevier County area real estate market, foreclosures, and the impact of the "real estate/mortgage bubble" on the local rental management companies. Below is my sometimes critical and as straight forward as possible analysis of the market.

The overnight cabin rental business realized a decrease in business during the early summer months (compared to the same time frame in previous years) when gas prices spiked to around the $4 mark. I think it discouraged some visitors from traveling here and some from making plans to travel during the later months or at least waiting to book their vacations. The good cabin management companies adapted quickly once they came to the realization their occupancy was not as high as it was in the past by offering incentives. The rental management companies typically offer some sort of "incentive" such as stay 5 nights get the 6th night free or something along those lines. But a few management companies were smart and tied their discounts directly in to what the consumer was seeing as the reason for them not making the trip - gas prices. So, they advertised on their websites things such as Summer Gas Incentives - 10% off cabin rentals and things of that nature. For instance, a cabin that would typically rent for $200 per night would be a savings of $20 per night and the typical summer stay is at least 3 or 4 days, so it was enough of an incentive to entice the visitors to book the cabins. The average visitor to the Smokies is not extremely affluent, they are your normal average Joe for the most part. This ultimately resulted in slightly less rental income for cabin owners, but far outweighed the alternative of having no rentals at all!

Some management companies did not adapt as quickly and I believe they are suffering because of it. The vast majority of people who rent cabins do two things: drive to the destination and find the cabin they end up staying in on the Internet. The management companies who capitalized on both of these by placing in the top in Google Searches, use pay-per-click advertising and adapted quickly to the gas increases seem to be doing fine and actually are on par with past years.

In talking with several different rental management companies, they are seeing a few differences from the past. First, people are not booking rooms as far in advance. I have seen the rentals for several cabins seem empty for August when I looked at them in May & June and then all of a sudden it was booked for virtually the entire month. I am not sure the reasoning behind this, but I would think with the economy facing its struggles and gas prices fluctuating people are waiting to know their financial condition closer to the date of their vacation. They also have told me the cabins renting the most (at least with these specific companies) are the smaller cabins or the very large cabins where groups/families come to meet. So the 1 BR cabins along with the 4+ bedroom cabins tend to be the ones with the best rental histories as of now. The mid-range sized cabins such as 3-4 BR cabins are not performing as well as they had in the past. For instance, a small family coming on vacation with a couple kids can stay in a 1 BR cabin and it still works for them because the cabin may sleep 4. So, the need for the cabins in the 2-4 BR range is less than that of a 1 BR cabin. Although, I must also say there have been quite a few one bedroom cabins built!

Cabin rentals seemed to peak in the period prior to 2005 when there was a great demand for cabins and the supply was still not up to the demand. In and around the time of 2005 there were many large developments and PUD's with cabin upon cabin built in a short amount of time. The demand did not increase, but the supply of cabins increased dramatically, causing the overall gross rental income for many cabins to go down. The cabins that were built in the 1990's and dated as far as the amenities a visitor is looking for saw the largest decline. These cabins now are sort of phasing themselves out as rental properties as they become older and not performing as well as they had in the past. The one exception is a cabin with a tremendous view or on a river - these cabins continue to do well even if they are older and dated. Thankfully, with the downward trend of the real estate market, new cabin builds have slowed dramatically, allowing the supply vs. demand find a better position than the quick growth period of 2005-early/mid 2007.

As far as the real estate market is concerned, in my opinion, I have no indications of prices recovering right now. I dont think they have a lot of room to go lower, but also do not think we have hit bottom yet. In March, I believe it was, I showed a 6 bedroom, 6.5 bath in Black Bear Ridge with a fairly good view. It was on the market for $399,000 and I thought this was a decent deal due to the rental income potential I was aware of and had looked at for comparable cabins in the development. When it dropped to $375,000 I thought it was a good deal and my family and I considered purchasing it ourselves for investment. We ended up not buying it and it sold for $375,000 not too long afterward. Just recently the same model of cabin in Black Bear Ridge came on the market completely furnished as a foreclosure with a much better view and now it is in contract for $369,000. So prices have without question seen declines (particularly in certain developments facing a lot of foreclosures) from the beginning of the year to now. The reason I believe there is still room for the prices of cabins to go down is because even at current foreclosure prices, most cabins do not cash flow with 20% down after paying 40% to a rental management company and all the utility expenses, taxes, homeowners insurance,etc. There are a few cabins here and there that will cash flow, but the vast majority still do not. When a large portion of the cabins hit the point where they cash flow I believe that will be the turning point as investors see the cabins as a wise investment and while there is a lot of inventory of good deals they will begin buying again. As they begin buying at the point where quite a few cabins cash flow, the inventory will go back down and I think there will be a recovery. I cant predict when that point will be, but I do try to have as much data as possible and analyze the market very carefully.

Currently, the developments with the most foreclosures are Black Bear Ridge, Hidden Springs Resort, and Covered Bridge Resort. This can be attributed to buyers paying outrageously high amounts for cabins at the peak of the market and the cabins never realizing the gross rental income they were "projected" to have. Most other foreclosures are scattered here and there, other than the three I mentioned above and Sky Harbor (just due to its sheer size and large number of cabins). A lot of the good deals in Black Bear Ridge have already been picked over, but there are sure to be more foreclosures upcoming. Hidden Springs Resort has experienced the most recent influx of foreclosures, which was predictable as I had viewed many of them in a "short sale" status.

To summarize, my opinion of the market is that it has some room to go down in prices still with the rental investment cabins. Many of the foreclosed cabins even at drastically reduced prices do not necessarily make a good investment in terms of cash flow. There are typically a few reasons a cabin does enter into foreclosure - either the owner paid too much for the property, the cabin was not suitable for a well performing rental cabin, or the owner simply is facing troubles economically. Unfortunately, many cabin owners are faced with all three situations at once which usually leads to a position difficult to recover. A lot of the cabins going into foreclosures do not have good views or other attributes and amenities necessary for a well performing rental cabin.

I believe my useful skill is to sort through these properties and determine which are the most appealing as investments by analyzing the potential rental income a cabin should generate. For example, if there is a foreclosed cabin with a good view, all the modern amenities, and in a well established and proven development it will typically be a good cabin to consider because it should perform well as a rental. Situations where an owner who foreclosed and paid too much for the property or faced other economic difficulties are the type of cabins to focus the searches. Buying a cabin that foreclosed due to the flaws of the cabin itself usually leads to just more troubles unless the cabin is purchased at an extremely low price. Purchasing a cabin that does not have a good view, does not have an open floor plan or large windows, and does not have the amenities visitors desire still leaves you with a cabin that lacks what it takes to be an excellent performing rental - even if you did purchase it at what is perceived as a "good deal".

I hope this blog was helpful in answering a couple questions I know several of my clients have. If anyone has any other questions they would like my opinion on, please feel free to e-mail me and I will give my best response. Thank you!

I am a frequent visitor of local auctions - partially looking for a bargain on some real estate and in some ways for curiousity, entertainment, and getting a better feel for the real estate market.

Recently, I have attended auctions by various companies including Furrow Auction Company for some beautiful commercial land in Wears Valley - where my family ended up purchasing 2.6 acres for what we feel was a good bargain (approximately $85,000 less than the current tax appraised value of the land).

Other auctions included some large land parcels for sale by Thompson Carr (180+ acres off Henrytown Rd.) and McCarter Auction (70 acres off Thomas Cross Rd. in New Center). In both of these auctions the large parcels of land sold for shockingly low figures in comparison to what most people are used to seeing for acreage in Sevier County. I even attended an auction for a lot where nobody showed up. We had our eye on Lot 32 E. Harvest Moon Rd. in The Homestead for a while and noticed it was to be auctioned off by Jax Auctions. Much to our surprise my dad and I were the only people to show up - including the auctioneer! As soon as we arrived and saw nobody else was on-site we quickly called the auction company and were told Mr. Jax (the auctioneer) had become sick and was unable to conduct the auction. We also attended the auction of the James Lee Fox farm with prime frontage on Veterans Parkway (by Marty Loveday) and the large Commercial Motorcycle shop with living quarters above off Wears Valley Rd. (auctioned by Kennedy Auction). Needless to say, I enjoy going to auctions!

I had learned about the auction of the 3 bank owned cabins in Lones Branch Resort by driving by the development on Jayell Road. Personally, I am not a big fan of the development because the area is primarily a permanent resident neighborhood and to me the cabins stacked on top of each other in the PUD sticks out like a sore thumb. But, I wasnt ready to write the properties off just yet. I did my research of the past selling prices of all the cabins and the current cabins on the market. The development only had 3 different models built in the community, so finding comparable properties was very easy. The lowest priced sold cabin with the same floor plan (1,008 square feet) was $130,000, but this cabin was unfurnished. Current similar properties were listed in the $170,000 range with one pending contract at $154,900.

After more research, I learned of the horrible mess the development encountered in its past. The developer, Dan Stetson of Stetson & Associates out of Florida, created Deer Path Vacations. The development company solicited money from ministers and other religious leaders across the nation for investment cabins promised to perform well and be excellent investments. Title deeds were never recorded, the developer placed cabins over the lot lines, and in the case of Douglas Lake Resort managed to place septic, water lines, and cabins on the wrong property. Banks had to end up buying all the properties at auction in the developments. The situation had become such a disaster the Douglas Lake Resort development's owners are now forced to pay a $50,000 special assessment for the roads, water, and sewer lines to be brought onto site. The develpoments facing the problems are Douglas Lake Resort and to a lesser extent Lones Branch Resort. This dropped my enthusiasm even more for attending the auction, but I thought with a non-local auction company, Cole Auctions is out of Morristown and operate in 4 different states, there might be a chance not many people would show up. I had not seen any other form of advertisement for the absolute auction.

Doing my due dilligence, I called the owner of Cole Auctions, David Cole, submitted by Broker Participation form (to get my 2% Commission if I were to buy a property as a Realtor - which was another interesting ordeal in itself from Mr. Cole) and asked him if he had the financials of the Home Owner's Association. He told me over the phone that he did not have them, but could contact the bank (who owned the cabins) and have them look into it and he would "let me know if there was anything adverse in the HOA financials".

By the time Saturday had rolled around, I had to juggle two different clients over the weekend and attend the auction, so I knew I would be busy fitting the auction into my schedules. I arrived at the auction site just in time and registered. I was bidder #20 and I would estimate I was one of the last 2 people registering. So, I was thinking, this was a little more of a turnout than I had expected, but there is still a chance for a deal depending on who shows up.

Of the three cabins the one I had the most interest in was located on Lones Branch Creek. The auction company had binders of information in the cabin prior to the auction for inspection. When I viewed the survey for the cabin, I noticed a large portion of the cabin sat over the lot line and actually into the road. I asked an assistant of the auctioneer about this and he assured me they filed a variance and got it approved by the proper authorities.

The auction was about to begin and the auctioneer, opened up by answering any questions by the bidders. There was an attorney on-site and he provided an answer about the cabin encroaching over the lot line and into the road. Mr. Cole, the auctioneer, then asked for other questions. I spoke up and asked if he had ever obtained the financial of the HOA. He looked at me puzzled and asked me to ask the question again. So, I said "about 3 days ago I called you and asked about the financials of the HOA". He then sharply replied "I never talked to anybody about that". Which was absolutely 100% untrue and really upset me because not only was he not being honest, but it made me look like a fool in front of all of the other people. At this time, I wondered why he would say such a thing about the financials of the HOA. The attorney then stepped in and said the HOA was scheduled for their meeting next week. Something seemed fishy to me, so at this point, I had decided I would not bid no matter how low the property was going to end up going for.

I wanted to get up in front of everyone and tell them of the past issues with the develpment because very few of the people attending seemed aware of the past situations. To make a long story even longer, the cabins began being auctioned as buyers choice (the winning bidder could choose the cabin they wanted at that price or a combination of cabins at the final bid price). The cabin on the creek sold first for $140,00 (with a 10% buyers premium for a total of $154,000). The lady who won the bid was not even sure which cabin she was going to decide upon after winning the bid - she finally selected the cabin on the creek after hesitation.

The rest of the auction was conducted in a more normal manner, with the other identical cabins selling for $135,000 (+ 10% buyers premium for a total of $148,500) and $122,500 (+ 10% buyers premium for a total of $134,750). The last buyer received a pretty decent deal considering the lowest price a cabin has sold in the development was $130,000 and that was unfurnished. The other bidders paid close to market value in my opinion.

The auction ended up being a total waste of my time (as some are, you never know going in) and quite frustrating to have an auctioneer flat out make false statements regarding our previous conversation in front of the crowd. It will be interesting to see what happens in that HOA meeting in the next week. I know there was a special assessment of $50,000 per property owner in the Douglas Lake Resort community for the mess the developer created. I hope for the sake of the people who won the property in the auction, this is not the case for Lones Branch Resort.

I have had relatively positive experiences with McCarter Auction, Furrow Auction Company, Marty Loveday, and Thompson Carr, but my experiences with Cole Auctions is what gives the auction industry a bad name in certain circles.