Q&A: Locating Comparable Properties for Appraisals Becomes Hard Due to Increasing Multifamily Foreclosures

Q&A: Locating Comparable Properties for Appraisals Becomes Hard Due to Increasing Multifamily Foreclosures
Published: May 15, 2008

Marki Lemons is a broker with Rubloff Residential Properties, a Chicago-based residential real estate firm. Lemons is a native of Chicago’s south side, and with nearly a decade of experience in the industry, has become a well known name when it comes to foreclosures and short sales. In fact, Lemons is known as Chicago’s “Queen of Foreclosures,” among her peers.

In the current market, Lemons is witnessing more and more owners of properties valued upwards of $500,000 coming to her for help. This trend has serious implications for the state of the housing market, but could also mean that a burgeoning area is emerging for real estate investors, Lemons tells Anuradha Kher, MHN Online News Editor. She also talks about the Chicago condo market, multifamily foreclosures and their effect on the overall market.

MHN: How is the Chicago condo market doing?

Lemons: In the Chicago market, condos have slowed their pace in new development and in sales. There are numerous developers who have decided to scrap development plans and have opted not to build at this time. Also, others who had started to build have now switched from condos to high-end rentals. According to Realtor data obtained from Midwest Real Estate Data, there are 404 active condo listings in the Loop, and 113 active rentals (two bedrooms plus). This illustrates the shift in the market from sellers to buyers/rentals in Chicago’s condo market.

MHN: Are there many multifamily properties being foreclosed?

Lemons: Multifamily residential properties consisting of one to four units make up about one-third of all residential foreclosures. In the Midwest, this is often a result of rising costs to heat units in the winter. Numerous owners haven't converted their heating systems to individual heat, which could save them thousands of dollars over the course of a year.

MHN: Is there an increasing number of foreclosures among high-end multifamily properties? Does that hold true for cities like Chicago and New York as well?

Lemons: Not long ago, there was a time when only lower- and middle-income properties were affected by foreclosures. But today we see numerous high-end properties entering default. Often the investment didn't provide cash flow but the homeowner was hedging on future appreciation, which has ceased at this moment. This trend is holding true for major cities, including Chicago and New York. Chicago and New York have the longest foreclosure process in the U.S. Illinois takes 330+ days and New York is 440+ days.

MHN: At this point foreclosures are an unnecessary evil, so is being called queen of foreclosures both flattering and disturbing?

Lemons: I am only disturbed by those who don't seek to first understand but pass judgment nevertheless. Foreclosure is a stressful situation that can leave emotional and financial scars. I just want Realtors and the public to be informed and to use empathy, not judgment, when dealing with those facing foreclosure.

MHN: How is the recent increase in foreclosures among multifamily properties impacting the overall multifamily market?

Lemons: The recent increase in foreclosures among multifamily properties has made it hard to locate comparable properties for appraisals. An appraiser in the current market would look for the last three comparable properties that have closed in an eight-square-block radius. In some areas, the only properties that have closed are distressed sales, which decrease the value of all other properties in that area. If the homeowner had a high LTV (loan to value) loan, they will be forced to hold the property or face foreclosure themselves.

MHN: What is a short sale and what leads to it?

Lemons: A short sale is any time the lender takes less than what is owed. Most short sales are the result of foreclosure; however, we are starting to see lenders entertain executing a short sale on a property that isn't in default because the current homeowner has proven hardship (job loss, divorce, medical issues).

MHN: What are the best ways to market foreclosed multifamily properties?

Lemons: The best way is to first pay no attention to what is owed on the property. A realtor must do a detailed CMA (Comparable Market Analysis) that takes into consideration all the repairs that are needed in order for the property to be in good condition. The properties that are selling in this market are in the top one-third in regard to condition, yet are priced in the bottom third.

MHN: What should owners consider when choosing to foreclose a multifamily property?

Lemons: Foreclosure often is not a choice. It's the result of financial difficulties that one cannot get through quickly. Owners need to take action and call their lenders to see if they can get a loan modification. If that doesn't work, they need to work with a Realtor to get their home sold.