Properties in distress

When Josh and Amanda Brandt began looking for their first house this year, they wanted what every buyer wants.

"What we really wanted was a good deal," Josh Brandt said.

The first house they found was in Fuquay-Varina. It was a short-sale, meaning the owner was trying to sell it for less than the amount owed to the bank. After the Brandts submitted a low-ball offer of $120,000, the owner of the house asked them to increase their offer to $129,000.

They did. Then they kept house-hunting because their real estate agent, Millicent Williams of Century 21 Vicki Berry Realty, warned them that they needed a back-up plan in case the bank rejected their offer or simply took too long to get back to them.

Three weeks later, just as the Brandts were about to close on a brand new house in Angier, the bank accepted their offer.

"We got pretty lucky," said Josh Brandt, 24.

Among the byproducts of the housing bust has been a dramatic rise in the number of distressed homes on the market. Many buyers assume these properties are can't-miss deals, but the reality is that purchasing a distressed property is often fraught with uncertainty and risk.

Although the Triangle has not had nearly the number of foreclosures and short-sales as other regions, they can be found in just about every neighborhood and at just about every price point.

Their numbers have increased as the act of losing one's home has lost the stigma it once carried.

"Foreclosures are actually getting artificially inflated to a point because people are willing to walk away," said Mike Golden, broker in charge with Century 21 Vicki Berry Realty. "Especially by people who don't have any equity because they bought in and got 100 percent financing."

About 1,050 homes listed with the Triangle Multiple Listing Services arelabeled "special conditions," meaning they are foreclosures, short-sales or under some other form of financial distress. That's about 5 percent of all the homes listed for sale in Durham, Johnston,Orange and Wake counties. The actual number of distressed properties on the market is higher because many property owners don't label their listing as such for fear it will turn off buyers.

Stacey Anfindsen, a Cary appraiser who analyzes MLS data for Triangle real estate agents, estimates distressed properties make up no more than 10 percent of all the listings in the Triangle.

'Sold as is'

Buying a house out of foreclosure or in a short-sale is not for everyone. Most of the homes will require some work, but unlike with a normal sale, negotiating repairs is often not an option, said Jeanna Reeves, a Re/Max United agent in Raleigh who has offered foreclosure tours for buyers in the past.

"They are sold as is," Reeves said.

Earlier this year, Reeves took one of her clients, Meg Lavoie, to look at a townhouse in North Raleigh that Fannie Mae had foreclosed on in February.

Lavoie is hoping to buy a foreclosed property that she can turn into a rental.

The North Raleigh townhouse had ratty carpeting, and it was clear the previous owner had owned a dog. Lavoie wasn't impressed.

"I don't want a big hole that I'm throwing money in," she said. "I don't know. It just doesn't speak to me."

Lavoie is in no hurry to buy, which makes a foreclosure or a short-sale a good fit.

Patience required

Any buyer putting an offer on a house being sold as a short-sale should be willing to wait at least two months without knowing whether the bank will accept the offer, said Dave Jezierski, a real estate agent with Homes in the Triangle.

Jezierski said it's crucial that the agent listing the property is familiar with short-sales and knows what he or she is doing, otherwise the process can drag out even longer.

As for the perception that a buyer will be able to get a property for a huge discount in a short-sale, Jezierski said that's largely not true.

When a bank agrees to sell a house in a short-sale it usually does its own appraisal.

Jezierski said the bank isn't likely to accept an offer that is significantly below what the appraisal says the house is worth.

"Unless the house is just pretty well trashed, it's going to be within 5 percent of market value," Jezierski said.