May 28, 2008

Housing Bulletin

Housing Bulletin— Neumann Bankruptcy Spurs House Auction

Prairie Ridge community: 340 Clover Circle, Minooka, IL

Summer Gate at Southbury community: 300 Addison Court, Oswego, IL

Summer Gate at Southbury community: 274 Willington Way, Oswego, IL

Before Neumann Homes went into bankruptcy last November, it was the ninth-largest builder in the Chicago area, with subdivisions going up in a string of towns along the outer edge of the suburbs. The company’s tumble, which its CEO, Ken Neumann, acknowledged was due to over-exuberant expansion, sent yet another shockwave through the real-estate industry—while also creating a few dozen opportunities for bargain-hunting homebuyers in the suburbs.  

On June 28th, NRC Realty Advisors will auction off 54 single-family homes and townhouses built by Neumann Homes in the Chicago area and in southeastern Wisconsin. Among the residences up for auction are townhouses in Aurora, Grayslake, Hanover Park, Lakemoor, and Minooka; single-family homes in Gilberts and Oswego; and single-family homes in Sturtevant, Wisconsin, which is west of Racine. (Six homes in Lakemoor and Aurora owned by the big mortgage lender GMAC are also part of the auction package.)

 “The bargains you can get are just incredible,” said Laurie Tarver, NRC’s senior vice president, shortly after NRC had auctioned off some Neumann homes in Detroit. She couldn’t disclose final prices because the sales hadn’t closed yet, but she said one buyer bought a model home, fully furnished, for about 55 percent of what Neumann had wanted for the place unfurnished.

At the Chicago auction, scheduled for the Westin Hotel in Itasca, the opening bid for each house is about half what Neumann was planning to ask for it. For example, the suggested minimum bid for a 1,547-square-foot three-bedroom townhouse in Minooka (southwest of Joliet) is $90,000; Neumann had planned to market that house with a price tag of $175,295. A 3,391-square-foot four-bedroom house in Oswego (south of Aurora) that Neumann valued at $425,039 has a starting bid of $215,000. Competing bids may drive those prices up, but keep in mind, these opening bids are only the seller’s suggestion: there is a chance some of the houses will sell for even less than the suggested opening bid.

About half the homes are not finished. They may still need a driveway poured or interior finishes, such as kitchen cabinetry. For each of these unfinished homes, NRC has posted an independent contractor’s estimate of what it will cost to complete the house. The eventual buyer is not obligated to use that contractor; the figure is just there to help bidders approximate how much they will need to spend to finish the house. As is true at other auctions, buyers must also pay a 3 percent ‘buyer’s premium’ on top of their successful high bid. If you are the winning bidder at $100,000, that means you would actually pay $103,000 for the home.

Many of the properties are the last few homes that Neumann had to sell in developed, occupied subdivisions. There may be some undeveloped lots in those subdivisions, but at least new buyers there will have neighbors. That’s not the case for a planned subdivision—called The Conservancy—in Gilberts, which was slated to receive 796 new homes. Neumann built only two model homes there, which means that, for the time being, The Conservancy will have a lot more open land than the 500 acres Neumann had planned to preserve as open space.

If you are interested in the June 28th auction, go to NRC’s Web site. Tarver recommends that, before the auction, potential bidders do five things:

• Walk through the property (all the have open houses every weekend until the auction; see the site for times and addresses).
• Attend a How-to-Bid Seminar on a Saturday in June (information available at the Web site).
• Have a local real-estate agent help you evaluate the current market value of the house. Don’t rely only on Neumann’s published asking prices: they may not correspond to the value of the house now, six months after the builder shut down.
• If you are bidding on an incomplete house, hire at least one contractor to estimate the cost to finish the residence.
• Meet with your lender to determine precisely how much you can spend. Houses sold at auction are not sold with a financing contingency. You can’t go out after the auction to line up a loan; the property is sold the day of the auction.
  

Posted at 07:44 AM in Housing Bulletin | Permalink

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