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Internet home sales weave tangled web
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TEXT OF INTERVIEW
Tess Vigeland: We’re not done with our Cleveland foreclosure tours just yet. When I heard that some of the city’s foreclosed properties are for sale on eBay, I had to see them for myself. Apparently so-called “investors” from around the country are buying these homes sight unseen, some of them for mere hundreds of dollars.
So I decided to talk with Frank Ford. He works for a Cleveland nonprofit called Neighborhood Progress. And he’s been watching as these buyers start to realize what they’ve gotten themselves into.
We met at what was supposed to be one of those bought-on-the-Internet homes in Cleveland’s Fairfax neighborhood.
Frank Ford, welcome to the program. Thanks for meeting me out here.
Frank Ford: Thank you.
Vigeland: Describe for me what we’re looking at, which is basically an empty lot with hay on it.
Ford: Right. And a bulldozer sitting here. This is a house — was a house — that looked very nice from the outside. And if you were Internet shopping and you saw photographs, you’d say, “Geez, this looks good for $4,900.” In fact, it’s still listed as of last night on Yahoo! Real Estate for $4,900, even though it’s already torn down.
Vigeland: There is no house here.
Ford: Right, there is no house. There’s just a pile of dirt with some straw on it. You know, investing in real estate on the Internet is very different from buying, say, a vintage guitar or a set of wheels for your truck or some personal property. Because there, if you spend, say, $3,000, you’re out only your $3,000. Here, if you spend $3,000 or, say, $4,900 on this house, and then it gets torn down by the city, you’re going to get a bill from the city for $10,000 for the demolition.
Vigeland: And presumably, down the line, unless you sell it you’re still going to be paying property taxes.
Ford: Oh yeah, yeah, not only are you paying property taxes, but the city of Cleveland will then come by and, if you don’t mow the lawn, they will mow it for you. And they’re not cheap.
Vigeland: Let’s take this back a step and explain what we’re talking about when you mention buying homes on the Internet. I think that would be a new concept for most people.
Ford: Yeah, and I’m not sure if it’s happening in every city. But in a lot of the cities that have been hardest hit by the foreclosure problem, the volume is so great that it’s just caused real estate values to plummet. And so the banks that have taken these properties back into foreclosure find themselves sitting on an inventory of basically stuff that can’t move. They’re dropping prices dramatically, so it is not uncommon to find houses for $10,000, $5,000, even $1,000 and some of them are just being put on the Internet, on eBay, on various real estate Internet sites.
If the single, inexperienced investor whose watched the late night infomercials about how to buy real estate … those shows don’t tell you about the pitfalls of buying real estate, that you can’t rely upon the photographs. Because this property actually, from the outside…. Honestly, when I first saw it, I thought, “This is very nice.” Inside it was a disaster.
Vigeland: And it’s still up on the Internet.
Ford: It was on YahooRealEstate.com last night. I checked even though I knew it was down. For $4,900.
Vigeland: Bargain at half the price, I suppose?
Vigeland: Well, let’s go ahead and look at another property that you mentioned.
Ford: We’ll go to the one — it’s a few blocks away — where an investor from California bought it.
Vigeland: Alright, so here we are a few blocks away and a nice-looking house. Tell me what we’re looking at.
Ford: Well, we’re look at a wood-frame house, a little smaller than the other one we looked at. I mean, it’s in reasonably decent shape. I don’t know the exact figures, but I’m guessing it’s in the $10,000-$15,000. Some cosmetic improvements.
Vigeland: Do you know, was this property bought sight unseen?
Ford: That’s what I was told, that this investor from California bought it as an Internet sale. I think in this case though, here the failure is the failure to appreciate the market changes in Cleveland. So as the market has declined, the investor’s original plan to get $70,000 for this was just way overinflated beyond what the reality is of the current market.
Vigeland: Who is buying these homes on the Internet?
Ford: Buyers who buy in bulk, 10, 20, 30 properties at a time. And some of them just view themselves as wholesalers. And if they make even $100 on each sale, they’re happy, because they’re buying 20, maybe they’re spending $1,000.
Vigeland: What is this kind of thing doing to the housing market itself?
Ford: Well unfortunately, it’s perpetuating a problem and aggravating it, making it worse. If you think of these properties almost as defective products, for the lenders to simply put them back out in the marketplace is only causing more damage. What we would prefer to see is that the lenders take responsibility for these properties before they essentially dump them in our marketplace.
Vigeland: Is there confidence in this city that the real estate market will return?
Ford: Actually, the good sign is that in the last year foreclosure filings in the city of Cleveland have dropped. They’re increasing in the suburbs, but the good news is that for the city of Cleveland and its future for rebuilding is we’re seeing fewer foreclosures, and we are going to see an end to this. And as we do, it means the rebuilding and the cleaning up is going to really become more important.
Vigeland: Frank Ford, thank you so much.
Ford: Thank you.
Vigeland: That was Frank Ford giving me a tour of foreclosed homes in Cleveland that were or are for sale on the Internet. He’s the senior vice president for research and development at the Cleveland non-profit, Neighborhood Progress.