Deals in Bankrupt Subdivisions?

Real Estate Agent with Century 21 Results Realty

I recently took some buyers out looking at houses in an area with a lot of bankrupt subdivisions.  The houses were, in many cases, quite attractive and priced very competitively.

But there are a lot of considerations that buyers need to weigh before buying a home in a subdivision where the developer has gone out of business...

We'll start with the dangers...

  • The amenities may not be complete... and they may NEVER be complete.  If you are buying a property because of the pool or tennis facilities, and those items aren't there, they might never be built.
  • There is NO telling what might be built on the currently vacant lots... The bank that gets control of the lots wants to SELL them.  And they likely aren't going to quiz the buyer as to their plans for the neighborhood.  Your 5,000 square foot home could get a 2,500 square foot neighbor.
  • Warranties may just fly out of the window... Defunct builders won't be around to honor warranties, and the bank that sells the property isn't going to warrant the builders work.  Also, since the builder may have had financial pressures while the were building the homes, the quality might be challenged.
  • Important items like HOAs and CCRs might not have been assembled... This can be remediated by the residents... maybe.  The residents can form a Home Owners Association (HOA) and put together Community Covenants and Restrictions (CCR), but depending on the local laws, might require 100% of current residents to enact.
  • The community might have a stigma... from having been bankrupt.  This could affect future resale value... especially if the community isn't built out completely.

But there can be a reward...

  • Price... That is the real draw.  One might be able to buy in a community and type of house that could otherwise be unattainable.
  • Opportunity for appreciation... If the neighborhood turns the corner and gets built out appropriately, the reward could be higher than average price appreciation.  Buying under-priced property and then selling at market is a good business decision.

Do the math!

While searching for a home, make sure that the home meets your needs... and the neighborhood meets your needs... AS IT IS.  Also, don't forget to weigh the risks.  What if smaller homes are built in the neighborhood?  What if there are no amenities?  What if the guy next door is able to build a tar-paper shed in the back yard?

For some buyers, these properties represent a GREAT value.  For others, they represent a big risk.  By honestly examining lifestyle and options, one can determine if a home in a bankrupt subdivision is a good value for them.



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Larry Brewer - Benchmark Realty llc
Benchmark Realty LLc - Nashville, TN

My buyers all want the value without the risk. Can you whip up a little of that please. It's usually a lot of fun trying to educate these people on the risk and reward of buying in a neighborhood where the development is les than perfect.

Good post.

Sep 03, 2009 05:20 AM #1
Kate Wheeler
Country Homes and Land Murphy NC Realtor - Murphy, NC
CCIM - Murphy NC Real Estate for Sale

You've made some excellent points.  Sometimes that super bargain has hidden risks that buyers don't think of.

Sep 03, 2009 05:30 AM #2
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Lane, we have been waiting on one since February to get the liens cleared up. We try to find something else for the buyers just me. But, they want to wait. They are finally ready to close and we found out today the builder had signed doc's 3 ways. So trying to clear that up.


Sep 03, 2009 06:25 AM #3
Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

We've had one condo building in our area that has been in litigation now for almost a year.  They finally managed to clear up all of the lawsuits and now the lender is taking over the building.  The 5 or 6 owners have been put through the wringer. Now it is a matter of the lender figuring out a value on the building (unoccupied units are not complete) and then getting someone to take it over.

Sep 03, 2009 08:23 AM #5
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

Thanks.  There is a case of worm cans that can get opened up...

Sep 03, 2009 09:07 AM #6
Terry & Bonnie Westbrook
Westbrook Realty Broker-Owner - Grand Rapids, MI
Westbrook Realty - Grand Rapids Forest Hills MI Re

In this market place we do have a lot of new questions to ask or we can find ourselves in a problem in the future.

Sep 03, 2009 01:59 PM #7
Thom Abbott |770.713.1505 | Intown Atlanta GA Condo Living - Atlanta, GA
Midtown Atlanta GA Condos For Sale

Lane....great post! I sold a house in Snellville that was a subdivision that was not finished. But, there were no planned amenities, homes ARE selling there, and there was one actually under construction. And I had my Buyers' get a survey done to make sure they knew exactly where their lot lines were. What an eye opener! My Buyer's lot runs right up to the pine straw bed along side the neighbor's house. They basically have NO side yard!

But I've got some really happy buyers!

Sep 03, 2009 04:03 PM #8
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

Thanks everyone...  I appreciate the comments.  Risk is generally a requirement to reap reward... 

Sep 07, 2009 03:00 AM #9
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