It shouldn’t surprise us when a lakefront home on Geneva is foreclosed on. It shouldn’t be a surprise when that home cycles through the bank and then returns to the market as an REO property. Even if we shouldn’t be surprised by these things, we are, and when they do happen it’s a shock to most everyone. Neighbors are upset about the low price about to be paid. Buyers feel tingles running up their collective legs, and brokers? Well, brokers just want to spin volume so we’ll take any sale no matter how it’s labeled. Foreclosures, on the lake, are occurring.
This isn’t to suggest that they’re occurring with any sort of alarming regularity, because the are not. But when Clear Sky Lodge hits the market as REO during the same week that a property on Maple Lane in the narrows hits the market as the same, that’s a lot to absorb. Don’t get me wrong, it’s not a lot to absorb for the market, as Maple Lane ($1.584MM) received several immediate offers and is now under contract, and Clear Sky also received multiple offers within a week, but it’s a lot to absorb for those of us who didn’t think REO sales were ever going to become a steady presence in our lakefront market.
These two properties will both be closed within a month, so they won’t hurt in terms of dragging on inventory though they will sting a little in terms of their final settlement prices relative to the values of their neighbor’s homes. Maple Lane was a curious place. The land was big- around 100′ of frontage and 2 acres. That’s a lot of property no matter how you slice it, and at first blush, it appeared to be a most clean and powerful slam dunk. But upon further review, the lot was skinny and deep, and the lakefront low and potentially spongy. The views were direct to the North shore of the narrows, making that view the shortest view of Geneva that you could possibly find anywhere. So the lot was large but limited. To buy for $1.6MM (Not closed yet, but with multiple offers we have to believe it will close at ask or higher), to tear down (the house was pretty rough) and build for another $1.2MM puts a new owner in for $2.8MM. Have they somehow seized irreplaceable value? Meh.
The market for a newly built home was just defined by a sale right around the point in the 700 Club. Last week a fine home sold for $2.7MM, with fine finishes and a large, level lot. This is the best comp for a built out Maple Lane that exists, and it just closed for $2.7MM. So where’s the upside to Maple? Um, around $2.7MM. And we’re building and hoping to be in for around $2.7MM. Is that a super incredible value play, or is it just a market play that makes sense for one family and not for some others? The question answered itself.
We won’t discuss Clear Sky today because we must wait until it is properly under contract to do so. But there’s another foreclosure on the lake brewing today in the upper reaches of the lakefront bracket. A property like this one flirting with foreclosure isn’t a huge deal. It isn’t. And that’s what foreclosures on Geneva have become. There have been a few of them now over recent years- four, five, total? But these foreclosures are not so much market setters as they are tender morsels of opportunity that buyers greedily devour. In the process, they provide increased liquidity and replace weak, disinterested ownership with strong, under leveraged (mostly), engaged ownership. Foreclosures, in small doses, can be very good for a market.
If we’re going to keep our forests growing as they should, we need to light them on fire once in a while. This will clear out the dead wood and the brush and leaves that build up to such an extent that little plants cannot grow. If little plants cannot grow, some little animals can’t eat, and if little animals can’t eat, what will the wolves eat? I learned all I know about the forest when I was in Kindergarten. While we cannot light a market on fire to clean out some of the dead wood, we can let a few of these properties funnel through the foreclosure system and return to the market as delicious REO listings. It’s good for the market, and what’s good for the market is good for the rest of us too.