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Housing Crisis Upside: Bargains for Everyone

See some of the best housing deals in the country.

ByABC News
January 9, 2009, 4:51 PM

Jan. 12, 2009— -- Real estate watchers have been saying it for months now: It's a buyer's market and it's only getting better.

"There are all kinds of opportunities out there for people who have money," said James Wedgeworth, a real estate agent in South Carolina. "The smart money's buying right now."

Unfortunately for Wedgeworth, no one's buying the mansion at 74 Brams Point Rd. on Hilton Head Island. He and other real estate agents have been trying to sell the eight-bedroom, 18,000-square-foot estate for about two years. Thus far features like a private deep-water dock, indoor and outdoor pools, multiple fireplaces and a home theater haven't sealed any deals. So to entice buyers, the property, which has been appraised at $17 million, is now on sale for less than $8.8 million, a discount of nearly 50 percent.

Are You Looking to Buy a Home or Worried About Losing Your Home? Share Your Story With ABC News

It's a great value, Wedgeworth says -- but then, why isn't the smart money buying?

"Most people," he said with a chuckle, "aren't that smart."

Wedgeworth and others say that, these days, the weak housing market is forcing sellers of everything from luxury estates -- like 74 Brams Point -- to modest one-bedroom homes to slash prices.

J. Patrick Lashinsky, president and CEO of ZipRealty, said some homeowners who have sat on the sidelines waiting for prices to rebound are now "deciding that they just can't wait any longer, they have to sell. They're pricing their homes very aggressively."

Home prices in 20 U.S. cities fell in October by a record 18 percent compared to the year before, according to the closely watched Standard & Poor's/Case-Shiller home price index. Some of today's cheapest homes are on sale by banks that foreclosed on the properties.

"It really is almost a national situation where we can find you at least one good deal almost everywhere," said Rick Sharga, the vice president of marketing for the foreclosure listing service RealtyTrac.

The deals could get better still. Sharga said that a combination of factors -- including higher unemployment, more defaults on risky "Alt-A" and "Options ARM" mortgages and the expiration of foreclosure moratoria set by banks and state governments -- will mean that foreclosures will continue to rise. That increase will result in even more houses hitting the market.

In addition, Sharga said that banks last year had many foreclosed properties that they didn't try to sell -- what Sharga calls a "shadow inventory." The banks waited, he said, either because they simply had too many foreclosures to handle or because they wanted to delay taking the write-downs that come with selling a foreclosed property.

This year, he said, those properties might finally go up for sale -- and that will boost the housing inventory even higher. The ultimate result, Sharga said, is more declines in housing prices.

"This is economics 101," he said. "You still have more inventory than you have buyers."

Banks, overall, are getting better about getting foreclosed properties on the market as they finally establish a set of local brokers to move the homes, said Glenn Kelman, the president and CEO of online realty company Redfin.

But Kelman also warned that consumers shouldn't expect much in the way of frills when they buy a bank-owned home.

"They're not going to fix anything for you. You're going to have to buy it as is," he said. That, he said, can be "a nightmare."

Lashinsky knows of foreclosed homes that were purposely trashed by their previous owners. In one case, a San Francisco Bay-area home had its plumbing ruined after soon-to-be-evicted homeowners poured concrete into the home's sinks, toilets and drains.

"That's not an unusual example," Lashinsky said. "When people are frustrated and irritated, they say, 'I'm getting kicked out, I'm going to do whatever I want.'"

When buying a bank-owned home, such problems can hit a buyer by surprise. Unlike other home sellers, the banks, he said, are not required by law to disclose the home's deficiencies.

"If you know what you are doing, you can get a great deal. If you don't, it can be a huge waste of time," Kelman said.

Often the buyers of bank-owned homes are investors who then resell the properties. But just because an investor got to a home before you did, doesn't mean you won't still get a good deal, said Lisa Lauroesch, the vice president of business development at the online auction company Bid4Assets Inc. in Silver Spring, Md.

Investors, she said, will sometimes renovate homes and, though they sell them for higher prices than what they paid the banks, their listing prices may still be dramatically lower than the home's previous sale prices, Lauroesch said.

She cited a partially renovated, multifamily home in Detroit recently listed on her company's Web site, Bid4Homes.com. In 2006, the six-bedroom duplex sold for $42,000. After being foreclosed, the house was sold by the bank to an investor who later resold it to someone else for $8,000.

"$8,000 is still a good deal, regardless of what the person bought it from the bank for," Lauroesch said.

"When buying from the bank, maybe the price point is a little bit more to your advantage -- but you're dealing with a large institution," she said. "It may take a little longer."

Heavily discounted homes are often sold at auctions and, like bank-owned homes, they're typically purchased "as is."

Sharga said that, when possible, he recommends that would-be buyers have a contractor check out the home for problems before the auction -- it's a service, Sharga said, that a contractor may perform for free in hopes of getting the buyer's business later on.

How can you tell when a heavily discounted home is actually a good deal? Experts say there are a few things to watch for:

The Original Price Was Too High: Be wary of price reductions. Some are bargains and others are just marketing gimmicks.

"Maybe the person just overpriced it. Whoever was selling it might have just been an idiot. But nothing brings people into the store like a 30 percent discount, a 50 percent discount," Kelman said. "People tend to look at price reductions and overreact. To some extent, there are Realtors who are gaming the system. They drop the price to generate more activity in the listings."

Overvalued Neighborhood: One of the reasons home prices in certain parts of the country -- like areas of California, Florida, Nevada and Arizona -- have seen such precipitous declines is because they were overvalued to begin with.