When Lisa Parlee saw her dream house—a three-bedroom with a two-car garage in Tyngsboro, Massachusetts—listed as a foreclosure for sale for $199,900, she found herself in an ethical bind.
The 38-year-old and her husband had long been looking for a house in the area but couldn’t afford the $300,000 price tags. Despite the great find, Parlee says she had reservations about buying a foreclosed property. She imagined the former owner to be a family struggling to pay a fixed mortgage because of a job loss or a death in the family. “I was feeling guilty that we were making out on someone else’s hardship,” Parlee says.
Jaime was recently contacted by a man selling an original Xbox for $75 to help his mother pay her electric bill. Despite the rock-bottom price, he was able to negotiate the seller down to $50.
To assuage herself, she researched the property in local public records and discovered that the owner had taken out two adjustable-rate mortgages and three home-equity loans on the property in 10 years. That was all she needed to know. “I thought, you know what? The former owner made his own bed and he needs to lie in it,” she says. “I didn’t feel guilty anymore... I felt like God was giving us a break.”
These days, such breaks can be found everywhere. But as the saying goes: What price realty? The recession has divided the consumer public into two camps: people selling what they have in a quest to survive, and buyers taking advantage of the desperation. With these purchases, however, comes a less tangible price: the moral quandary of profiting from other people’s misery.
To deal with this dilemma, buyers are rationalizing their guilt, verifying that the previous owners acted irresponsibly, or simply embracing the hard-times, every-man-for-himself ethos.
Jaime Bacon, 23, an auto-glass installer in Grand Junction, Colorado, recently put an advertisement on Craigslist offering to buy videogames from those who could “use a little extra money in this economy.” Bacon, who then resells the games on eBay for a profit, was recently contacted by a man selling an original Xbox with 17 games for $75 to help his mother pay her electric bill and avoid having her lights shut off. Despite the already rock-bottom price (an Xbox alone retails for around $300), Mr. Bacon was able to negotiate the seller down to $50 before driving to the man’s home to pick up the items.
“It’s kind of like profiting off of a war, but at the same time, it’s business, and just like these people I’m buying from, I need to keep a roof over my head and I need to keep my electricity running, so I can’t really feel bad about it,” he says. “I look at it as, I’m kind of providing a service for these people. If I wasn’t doing this, then they wouldn’t be getting the money they are getting and they would just be stuck with videogames sitting around the house and no lights.”
Indeed, America’s sudden bargain fever makes the whole country look like one big going-out-of-business sale. According to the National Association of Realtors, sales of distressed homes accounted for nearly half of all of existing-home sale transactions in the year’s first quarter, up from single-digit percentages a year ago. And in a recent survey conducted by the National Association of Resale & Thrift shops, about two-thirds of the respondents said their sales increased in the fourth quarter of 2008 from a year earlier, with an average increase of about 30%.
But perhaps the most significant factor, say experts, is that this the first Internet-enabled recession, which makes profiting from others’ misfortunes easier than ever. The “Wanted” category on Craigslist, the Internet’s best-known pawn shop, is booming, with 60% more ads than the same period last year.
Some of these ads are nakedly open about their motives. One recent Craigslist post offered $8,000 for anything distressed sellers could offer. “I have about $8,000 to spend on ???? Looking to take advantage of this bad economy, and get a good deal on ???? So if you need some cash, and have something of value, you need to sell. Let me know.”
“We call them vultures,” says Paco Underhill, a psychologist who focuses on consumer behavior and the author of Why We Buy: The Science of Shopping. Such shoppers, he says, play an important role in capitalism by helping to set the bottom of the market, “but unlike in other times, the vultures now aren’t few and far between.”
Psychologists and shopping experts ascribe the rise of such predatory shopping behavior to a number of factors, including the tendencies of people during downturns to hoard items and go into self-preservation mode.
“When people suffer their own losses, it does make them feel they have to fend for themselves more than when the going is good,” says Kit Yarrow, a consumer psychologist and professor at Golden Gate University in San Francisco.
Often, the media only stoke the flames. Articles about exactly how to, say, buy a distressed property or find cheap labor are published daily. Shannon Moore, a Realtor in North Port, Florida, says the first thing potential home buyers ask now is, “Do you have any foreclosures?” She thinks they get the idea from hearing stories of other people scoring mind-blowing deals.
Still, the sources of these once-in-a-lifetime bargains give some shoppers pause. In the online MSN Real Estate community, more than a hundred posters in the thread titled “Would you buy a foreclosed home?” debate the ethics of such purchases. Many take a fatalistic view. One poster who bought a foreclosed home writes, “Like most, I had a period of time where I felt bad for the family living here before. But you can't dwell on that. Someone is going to buy that house.”
Richard Ameral, 56, an elementary-school teacher in Las Vegas, agrees. “If someone needs to sell it, they are selling it, and if I want it, I’m willing to pay what they want, and if not, someone else will.” For the past year, he’s been visiting foreclosures and yard sales weekly to snap up jewelry and Native American collectibles.
Others find ways to replace their pity with contempt. Katie Araque-Frick, 26, a first-time home buyer in Woodbridge, Virginia, was uncomfortable with the idea of buying a foreclosed house last fall until she learned more about the mortgage process. “I became more confident that whatever the former owners did, it probably was their fault,” she says. “It wasn’t like hard luck on their part. A lot of these people just bought more than they could afford and made stupid decisions.” Her sympathies were further diminished after she moved in and soon found a subpoena taped to her new door. It was for the previous owner, who had neglected to pay her credit-card bills.
Psychologist Dr. Yarrow says such justifications are defense mechanisms acting in response to engaging in a transaction where there is a clear winner and loser. “They are taking themselves away from any sort of perception of being opportunistic or predatory by rationalizing,” she says.
In rare cases, buyers are genuinely altruistic. In one well-publicized case last fall, Marilyn Mock, a rock yard owner in Rockwall, Texas, bought a home at a foreclosure auction on the spur of the moment for the former owner, who is paying Mock back in monthly payments. “If I was in that situation, I’d want people to help me,” says Mock, who is often referred to in the press as the “foreclosure angel” and who has since started a foundation to help struggling home owners.
More often, the line between angel and opportunist is blurred. Earlier this year, Michael O’Reagan, a 36-year-old firefighter in Fall River, Massachusetts, went to the home of an elderly woman who was selling her brother’s World War II memorabilia, including a uniform and medals, to get her heat turned back on. O’Reagan, who had put an ad on Craigslist and in local newspapers offering to buy military items to “help take the sting out of the poor economy,” says he took the items for $600, twice as much as they were worth.
“I felt bad for her,” O’Reagan says. “She needed the money more than I did...You got to give a little back because if you don’t, we’re all screwed.”