Please, take my house

With preforeclosures getting mixed in with listings at sites like Yahoo! Real Estate and Trulia, bargain hunters may be disappointed to find that many properties that turn up in search results aren't actually for sale, and the dollar amounts that accompany these properties may represent a borrower's indebtedness instead of an asking price (see story).

While you may not be able to buy a home in Miami Beach, Fla. or Hermosa Beach, Calif. for less than $100,000 -- despite what your initial search results at a listing site might lead you to believe -- that doesn't mean you can't pick up a house in a place like Detroit for less than a realtor's commission. That's right -- the sales price on some properties may actually be less than what the realtors on both sides of the transaction collect in commissions.

Working on another story this week, Detroit broker Jan Bond told me he'd recently handled a closing where the home sold for about $1,000, and the buyer's agent and listing agent each earned $1,500. That's $3,000 in commissions paid on a $1,000 sale. How does that work, you ask?

Bond specializes in real estate owned properties, and some lenders who are trying to get homes off of their books pay a minimum commission of $1,500 to agents on each side of the transaction, he said. When you consider the potential costs associated with owning a foreclosed property -- taxes, maintenance, legal liabilities -- it makes sense that in some instances, banks would be willing to take a loss to get rid of a property (on top of whatever money they're losing on the defaulted loan). Unlike a homeowner, a bank can't just walk away from a home (although Bond said he'd heard of one instance where a lender was trying to "donate" an unwanted REO property to the city). Bond thinks that if banks were smart, they'd up their minimum commissions so brokers and agents could do more to market their low value properties.

So how often do minimum commissions come into play? With a standard 6 percent commission, the minimum Bond described would kick in when the sale price is $50,000 or less. There are quite a few properties out there in this category. Head over to the REO Web page of troubled alt-A lender IndyMac Bank, and you'll find nearly 300 properties the lender has repossessed and is asking $50,000 or less for.  There are more than 50 homes priced at $10,000 or less -- most of them in depressed communities in Michigan such as Detroit. Countrywide Home Loans' REO department has more than two dozen houses on the market with list prices of $1,000 or less in Detroit alone, about 300 in Michigan priced at $20,000 or less, and nearly 500 under $50,000 in the Great Lakes State.

The cheapest property on IndyMac's books is a three bedroom, 1,216 square foot manufactured home in Davisburg, Mich. offered at $1,800. Another typical bargain basement property is the 1,400 square foot, brick three-bedroom in Detroit pictured above. Built in 1927, the asking price is $2,800. 

The good news? That other story I was talking to folks in Detroit for was about a report from PMI Mortgage Insurance Co., which projects a reduced risk for price declines in Detroit and other markets that didn't see runaway appreciation during the boom. PMI calculates the chance that prices will be lower in a given market two years from now, and sees a reduced risk of that happening in 326 of the 381 metropolitan statistical areas (MSAs) analyzed (see story).  

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