If you're looking to buy a cheap home in suburban Boston and find yourself looking at one of Christina Lazrak's listings, here's a tip: Don't touch the doorknobs or the banisters. Lazrak specializes in selling foreclosed houses, and many of the previous owners—the ones who've defaulted on the mortgage—aren't very happy to be moving out. So before leaving, some of them punch holes in walls. Others manage to walk off with built-in appliances or cabinetry. Their most disgusting tactic: wiping feces on doorknobs and banisters, creating a surprise for would-be buyers. "We go through a lot of Purell," Lazrak says. (Article continued below...)
It's one of the costs of doing business in what's emerging as the busiest niche in the real-estate industry. The current crisis on Wall Street began, at root, when too many Americans who'd stretched to buy a home began coming up short on mortgage payments. Now, even as the ripple effects have claimed some of Wall Street's oldest companies and threatened to cripple the financial system, foreclosures continue apace. According to RealtyTrac, U.S. banks now own a record 820,000 homes, up from 224,000 at the end of 2006. By the end of this year, says RealtyTrac senior vice president Rick Sharga, banks could own 1.2 million homes, which could constitute one third of U.S. homes for sale.
To sell them, banks turn to a special breed of real estate agent. "REO brokers" (it stands for "real-estate owned," and refers to foreclosed houses now owned by banks) rarely get to watch happy buyers carry spouses over the threshold. "It's more about the numbers, and less about the emotions," says Michael Krein, president of the National REO Brokers Association. These agents also deal with lots of headaches traditional listing agents can avoid. Agents selling foreclosed homes often oversee the cleanout of the properties. They manage all the utility bills. In many neighborhoods, they deal with frequent break-ins and vandalism. They often arrange for contractors to repair damage. "It's a different skill set," says Krein, who's been selling foreclosed homes for 23 years. "We have to deal with everything the seller would normally do."
For newer agents like Lazrak, 38, and her business partner, Ann Marie DuRoss, 32, there's a simple reason to seek listings from banks: right now, that's where the business is. DuRoss entered real estate in 2002, after leaving a job at Sun Microsystems; Lazrak, a former project manager at General Electric, got her license in 2003. After a year or so of selling homes mostly to friends and family, Lazrak made a connection with an asset-management firm, which banks use to help manage their portfolio of foreclosures. By the time foreclosures started to spike in 2007, Lazrak had enough experience to win listings. Last fall she partnered with DuRoss, who previously sold mostly newly built homes. Today they work from a small upstairs office at Re/Max Prestige in Chelmsford, Mass., keeping track of their 106 listings. Every few minutes Lazrak's cell phone rings, blasting the ABBA song "Money, Money, Money."
You won't find any of their homes in the pages of Architectural Digest. Many are in tough neighborhoods in the old mill cities of Lawrence and Lowell, in the northeast corner of the state. While the median-priced Massachusetts home sold for $314,000 in August, DuRoss and Lazrak have listings as low as $34,000. Even the homes they're selling in nicer suburbs have seen better days. One afternoon this month the pair hopped into DuRoss's Nissan Murano, punched an address into the GPS, and drove over to a new listing on Butt Hinge Road. (Go ahead: everyone else jokes about the street name, so why not you?) Inside, everything is worn. The big problem lies downstairs. "Hold your breath," DuRoss says, en route to the basement. There she points to a large indoor pool that, despite a recent chlorine shock treatment, looks like a bacteria-laden petri dish. The pool lacks a ventilation system, and the resulting moisture has left the entire first floor caked in mold. They've had this $384,900 listing just two weeks, but they worry it will require a buyer to spend $100,000 on repairs—and afterward it probably won't be worth anything near a half million.
Stopping at another home, they open the door cautiously. "We don't want people to get surprised," Lazrak says. Though foreclosed properties are emptied of residents and possessions before locks are changed, break-ins are rife. DuRoss and Lazrak have had a corpse found in one listing (someone broke in and overdosed, they say), but it could be worse. Krein, president of the industry association, says he's been shot at twice and stabbed once at properties. "Anybody who's been in the business a while has had a gun pulled on them," he says.
Aside from the physical danger, the economics of the business are mixed. Foreclosure agents often pay cleaning costs and utility bills out of their own pockets; banks are supposed to reimburse them, but it often takes months. (Lazrak and DuRoss's banking clients currently owe them $30,000.) Deals constantly fall apart because of problems with financing or lack of clear title. "Each one of these deals is three or four times more work than a regular sale," says Michelle Fermin, who has represented buyers who've purchased some of Lazrak's listings. And even though foreclosed homes typically sell at lower prices than traditional homes, agents are still paid by straight commission of 5 or 6 percent, which they split with buyers' agents. So far this year Lazrak and DuRoss have sold 85 homes worth $16.2 million, but after expenses, each will barely break the $100,000 mark this year. "We're not rolling in dough," Lazrak says. To make serious money, big operators staff up and aim for large volume. Krein, whose Las Vegas-based firm has 36 employees, hopes to sell 1,500 foreclosed properties this year, and says some veterans pull down seven figures a year.
While some may see them as vultures feeding off misguided mortgage lending, right now they're serving a vital function in the economy. "As long as we're under this tsunami of foreclosures, the financial system and the economy are going to suffer," says Mark Zandi, cofounder of Moody's Economy.com. "We need to sell these properties quickly, and [I'd tell banks] to be very aggressive with prices." There are some signs that's starting to happen. Lazrak says as banks have become more familiar with their work, they've become more likely to accept her price recommendations, which often leads to quicker sales. Sales may also accelerate as the year winds down. In 2007, Lazrak sold 27 homes in December, one third of her annual total, and some think banks will be even more motivated this year. "At the end of the year, there will be a fire sale as everyone tries to clean up their balance sheets for 2009," says Glenn Kelman says, CEO of Redfin, an online brokerage firm.
Based on what they're hearing from banks, Lazrak and her partner don't expect the flow of foreclosures to slow down anytime soon. "We've got job security into 2009," DuRoss says. When the flow of listings does start to ebb, they hope to purchase a property or two for themselves to rent out as investments. They also look forward to making more transactions that don't originate from an ill-advised loan, and to selling houses to smiling buyers who aren't worrying about cockroach infestations and whether the water or electric systems really work, since they couldn't really inspect the house with utilities turned off. "If you got into real estate because you wanted to help people buy their dream home, [this] does not give you that fulfillment," Lazrak says. But in their own small way, even with the Purell, she and her partner are helping to drive the troubled housing market toward equilibrium—and each time her phone rings, there's a chance some money will follow.