Bargain-Hunting
In Foreclosureville

By Jennifer Openshaw
From MarketWatch

LINCOLN, Calif. (MarketWatch) -- Maybe you haven't heard of Lincoln, Calif., but the story of this once-sleepy little agricultural outpost underscores what's going on in America's neighborhoods and provides lessons for all of us, real estate investor or not.

Before we get to those, there's some good news here. Prices, at least in Lincoln, are starting to go low enough to clear the market. In fact, according to real estate broker Charles Vines, overall inventory represents more than 10 months of sales at the current pace but the REO inventory -- real estate owned, meaning foreclosed and in the hands of a financial institution -- fell below two months in January from a peak of 14 in 2007.

This is a fascinating picture of the real estate market. You see, Lincoln is small-town America. The once-empty grassland north of Sacramento was the fastest growing suburb in the U.S. from 2000-2006, according to a Forbes.com analysis. Growth of 238% in seven years from 11,000 to 40,000 residents supports the town's self assertion: "a small community with big ideas."

A main two-lane highway, a parallel railroad, a feed mill, and a famous clay products factory known as Gladding McBean. That was then, this is now.

Nuclear winter

Today, you drive through the rolling foothills and what do you see? Rolling foothills of rooftops. Waves of tile rooftops as far as the eye can see, finally leveling off to the west.

And open house signs. One after another. Juxtaposed with banners and sign-wavers directing you to the latest new homes. Drive through the Del Webb Sun City development and you'll see lots of open house signs there too.

But on this recent day -- no people! Great day to be outdoors. But hardly a soul. Traffic? Crowds? People outside enjoying the sunshine? Not there.

The best deal on the bargain rack

Turn on to Southbridge Court and you'll find five "for sale" signs planted among the 10 or so homes on this short street. No more "ghost town." There were at least three families in various stages of getting in or out of cars to visit the open house of an REO property.

You see, it was on the market with an asking price of $314,000. Now, for you folks in Missouri or elsewhere between the coasts, this is California. The home was listed at 3,200 square feet. That's about $98 per square foot.

"The home was built in 2005 and sold for $586,000, to a buyer with 100% financing," according to Vines, the real estate professional on the scene. "There are 58 other REO on the list -- take a look."

Most were selling for between $110 and $130 per square foot.

And those families outside: one consisted of two young parents with a little girl in a late model four-wheel-drive diesel pickup. Another small family wearing "Raiders" T-shirts in a souped-up black Chrysler 300 with $500 wheels. Another young couple in skateboard clothing.

Inside there were three more couples. Not a single person over 30.

And the home -- from television news images we might surmise the place would be ransacked. Someone could have cleaned the shower doors, but the place was otherwise in good shape.

The only sign we were in Foreclosureville: the previous owner, likely a speculator who had another home elsewhere, had ripped out the landscaping. Holes where trees and shrubs once grew.

Another sign from a looker, apparently also a neighbor: "I hope this place sells soon. I'm getting tired of taking care of the yard."

Would you believe -- a bidding war?

Hard to sell an REO foreclosure? Yeah, sometimes. But not here, and not at this "fire sale" price.

There were offers in already -- six according to Vines. The bank said it was going to wait a week "to see what else came through."

And there would be many offers. Vines, familiar to many a lonely weekend open house hour in this soft market, was amazed by this one. "We've had 50 people in the hour and a half since I opened."

And, yes, some brought their checkbooks. Indeed, by the end of that week, there were 15 offers on that home. The highest bid was $364,000, that's what the bank-owner accepted. OK, all the way up to $114 per square foot.

Three lessons for the rest of us

1. There really are bargains out there. And you should follow along, whether you're in the market or not. True, buying foreclosures has been a game mainly for real estate professionals trolling the market for desperation. Owners had typically let the place fall apart along with their finances. These homes weren't for everyone. Now, with declining prices and the irrationally exuberant lending of the recent past, foreclosures are coming to more respectable owners in more respectable areas. Upshot: if you shop carefully you can get far more for your dollar than even a few months ago.

2. The free market still works. To find the bottom of a market -- either yours or one you plan to buy into, track the lowest foreclosure sales. Have a real estate professional help you examine the statistics. The bidding war on the Lincoln foreclosure speaks volumes about the real market price.

3. It's still about location. Obviously, not every foreclosure in every neighborhood is an opportunity. Vines suggests: "The best bargains are found in neighborhoods with a lot of new construction and sales in 2005-2006, priced somewhat above the median price for the greater area."

Watching the foreclosure market will give