I’ve had several clients recently who have come up against a common challenge in buying a home right now, and I’m not talking about tough lending standards!  It’s hard enough to be a first time home buyer in Southern Maryland;  Trying to understand the loan process can be stressful, understanding all of the moving parts involved in a real estate transaction is difficult, and now investors are coming into the market with a passion!

What’s Happening?

Unfortunately this means that home buyers are forced to compete with cash-flushed investors who are ready and willing to make a splash in real estate again.  With banks under pressure to sell off the foreclosures and REO properties they currently have, investors are quite often making the bank a deal they can’t refuse, specifically, CASH! (Rel. Link: Washington Post: Cash Investors Trigger Bidding Wars)

Investors Are Hard to Compete With

The reason investors are hitting the market so hard is simple.  There are a ton of cheap homes for sale right now!  Investors are experts at identifying great deals, and they have the ability to write offers that traditional buyers simply can’t compete with.

When an investor writes an offer, they often have the ability to write a contract that includes a proof of funds (POF) letter showing they have the liquidity to purchase cash, which means that the banks don’t have to worry about appraisals, underwriter approvals, termite inspections, or perhaps even a home inspection!

When compared to a home buyer who needs a loan to purchase the property, an investor could go to closing within 10 days, while a home buyer may need 30-45 days (or more) to get through inspections, appraisals, and underwriting.  It’s a no-brainer for the bank, a cash offer has very little chance of falling apart, and in some cases the bank may even take a lower priced offer if the purchaser is writing for cash.

Banks Are Underpricing Homes

The other issue that buyers can find frustrating right now is that banks are often deliberately underpricing foreclosure properties.  You see, banks WANT to getting these sort of bidding wars started.  By getting multiple bids simultaneously on a single property, banks can force people to offer more money on the home, using the fear of losing the property as motivation for offering more money.

What Are Investors Doing With These Homes?

What the investor does with the home depends on what their goals are.  For some, they are investing into rehabbing the property so that they can sell it in tip-top shape for a profit.  For others, they are holding on to the properties and using them as rental units.  The profit margins can be very lucrative:

Home Price: $150,000

Closing Costs: $2,500

Total Purchase Cost: $152,500

Annual Taxes: $1,400-$1,600

Rental Value: $1,450/mo or $17,400/yr

Annual Income: $15,800

Annual Return on Investment (ROI): 10.3%

With an ROI of more than 8%, the profit potential is very attractive for possible investors!  Unfortunately, until sales prices or rental values change, investors have a very good reason to be buying homes, and individual buyers are going to continue to see this trend continue.

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000 – office
301-653-8116 – cell

Charles County Real Estate Blog
SOMD Home Search
Southern Maryland Custom Homes & Land

The goal of the program is to reduce the number of vacant homes in neighborhoods troubled by foreclosures. Through a government funded program (Thanks to the large economic stimulus package), PG County has been allocated $10,883,234 for a program called the “Down Payment Closing Cost Assistance Program” (DPCCA).

If you’re looking to buy a foreclosure in PG County, you may qualify!  For a detailed list of qualification requirements, please click here:  Down Payment Assistance for First Time Home Buyers in PG County. This is going to allow you to purchase your first home with between $1,000-2,000 down, and no closing costs or additional down payment required!  That means some people are actually going to be getting their first home for almost nothing down, AND they can qualify for the $8,000 first time home buyer credit as well!

Keep in mind that this program is not designed to get people loans with serious credit issues.  Your credit and debt-to-income (DTI) ratio’s need to allow you to qualify for a traditional mortgage.  This program has been designed for people with good credit, but limited savings.

Will You Need to Pay Back the DPCCA?

You may be required to pay back some or all of the DPCCA Money you receive, depending on how long you live in the home.  The money is treated like an interest free loan, that does not need to be paid back until you sell your home.  Here’s the rundown on how much you may owe at settlement:

If you live in the home for: % of amount due is:

0-3 years                                                                        100%

3-6 years                                                                         50%

6-9 years                                                                         30%

10+ years                                                                         0%

The longer you live in the house, the more money you save!  When you figure that this program can save you anywhere between $6,000-$20,000, it makes one heck of an argument for buying a foreclosed home!

Have Questions, or Want to Know More?

Please feel free to give me a call on my direct line at (301)-653-8116 and I’ll be more than happy to assist you with taking advantage of this great program!

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000 – office
301-653-8116 – cell

Charles County Real Estate Blog
SOMD Home Search
Southern Maryland Custom Homes & Land

The Neighborhood Stabilization Program (NSP) and the Down Payment Closing Cost Assistance Program (DPCCA) have released their guidelines and trained a select group of lenders to be able to provide this program to potential homeowners!

How Does It Work?

Step 1:  Find out if you qualify!  Here’s the eligibility requirements:

1. Must be 18 years or older
2. Must be a first time home buyer, or must not have owned anywhere for the last 3 years
3. Home being purchased MUST be primary residence
4. Annual household income must not exceed program limits (less than $86,600 for 1 person, or $99,000 for two people, if you have children, the limit increases.  An income calculator for determining eligibility can be found at http://webapps1.hud.gov/hfc/calculator )
5. Must qualify for a loan from a participating lender (There are currently 37 approved lenders, give me a call for a complete list)
6. Must contribute a minimum amount of cash towards purchase (Between $1,000-$2,000)
7. Must have ratified contract of sale on a vacant foreclosed property (Need help finding that home?  That’s where a spiffy Realtor like myself comes into play!)
8. Buyer must also attend an 8 hour minimum housing counseling class provided by HUD and receive a certificate of completion. (Class is free, and there’s already a waiting list, so hop to it!)

What Does DPCCA Do?

DPCCA will provide up to $20,000 in closing cost assistance on an interest free loan, with an interest rate of 0%, that is payable only when you go to move!  The longer you live in the property, the less you are  required to repay!  For example, if you live in the home for 3 years, you’re required to repay 100%.  If you live in the house for 4-6 years, the balance due is 50%.  For 6-9 years, the balance is 30%, and if you live in the home 10+ years, you’re not required to repay the DPCCA at all!

Essentially, this program is designed to allow low-income families to purchase foreclosed properties with minimal downpayment.  The will help reduce the foreclosure blight that has troubled PG County, and reduce the number of vacant homes sitting in the area.  This program can be used in combination with the $8,000 first time homebuyer tax credit, which means that it’s possible to buy a vacant foreclosure for as little as $1,000 down, all closing paid, with 3.5% downpayment paid by DPCCA, AND $8,000 in tax credit provided by the federal government!  The incentives to buy a foreclosure in PG County just keep growing!

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000 – office
301-653-8116 – cell

Charles County Real Estate Blog
SOMD Home Search
Southern Maryland Custom Homes & Land

1.    Condition Dictates Value

This means that the condition of the home will affect what the home actually sells for.  If the house is in shoddy shape, the final sales price will affect that.  Look at comps when you go to place an offer and adjust your offering price accordingly.

2.    Banks Aren’t Giving Houses Away

If it looks to good to be true, it probably is.  When you find a listing for home priced significantly below the surrounding market or neighborhood, there is always a reason as to why.  The concept of buying a livable home in Charles County or Southern Maryland for less that $10,000 is simply not true.  You can find some excellent bargains, but don’t expect to pay $200k for a home that is actually worth $600k.

3.    Home Inspections are Critical

Think about it like this:  The foreclosure process in Maryland can take a year or more.  That’s a full year where the homeowner has been unable to pay the mortgage.  If you are behind on payments and know that foreclosure is eminent, ZERO incentive to pay for upkeep and maintenance on the property.  After the foreclosure, the property then sits vacant and can develop issues related to it’s abandonment.  Always hire an inspector to go over the property with a critical eye.

4.    Great Deals Don’t Last Long

You’re not the only person out shopping for a home, and if a value priced property hits the market, you can bet there are lots of appointments be made to see it.  Make sure that your financing is in order before you start looking.  The last thing you want is to find the perfect house and then lose out to someone else who was able to get their offer in first.

5.    Bank Owned (REO) Properties Are Sometimes “Under Listed”

This stinks, but banks have been known to list properties way below market value on purpose.  They may list a home for $200k, Knowing it’s worth $275k, just to get a bidding war started between multiple offers.  They see it as a way to get the highest price possible, I see it as intentionally deceptive.  Agents occasionally refer to homes like this as “Liar Listings”.

How Do You Protect Yourself?

Get a buyers agent to represent you.  The listing agent on a foreclosure works for the bank, not you, and their job is to get the property sold while protecting their clients bottom line.  A buyers agent works at no cost to you, and their job is to help you make informed decisions and craft an offer that will save you the most money possible.

Speak to your buyers agent about the best way to prepare yourself for buying a foreclosure.  They will be able to help you get in touch with a loan officer, ensure the property you buy will conform to your loan guidelines, and help you hire a home inspector who knows what to look for in foreclosures, among other things.
With the right people on your side,buying a foreclosure is as easy as buying any other home, and the value and savings can be tremendous!

LINK: Foreclosure List for Charles County, MD as of 5/20/2009  Need an Updated List?

Questions about buying a Foreclosure? Give me a call!

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000 – office
301-653-8116 – cell

Charles County Real Estate Blog
SOMD Home Search
Southern Maryland Custom Homes & Land

I have a client who recently purchased a foreclosure in Waldorf, MD as an investment.  The deal itself was straightforward.  He was paying cash, could close immediately, and wasn’t asking for closing help.

The bank was insistent that we use their particular title company.  It’s not uncommon to see that, banks often like to work with one company over and over because the processors are familiar with each other, and (in theory) it should help move the transaction along quickly.

The problem was that the title company was one of those bad apples.  They forgot to show up for settlement, and in order to get the closing done we ended up hiring a notary to sign all of the paperwork and have it hand delivered to their office, which was 70 miles away.

We were fortunate to have a notary that was able to get the settlement paperwork notarized in the absence of a title officer.  We were more fortunate that they were able to deliver the paperwork to the title company that day!

The biggest lesson for us was that we will never in a million years do business with that company if we can avoid it!  The title company that dropped the ball does a LOT of business, and I had never heard a complaint about them before, so we didn’t realize how disorganized they really are.  The important thing about discovering a bad apple is knowing better than to continue eating once you find half a worm!

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000 – office
301-653-8116 – cell

Charles County Real Estate Blog
SOMD Home Search
Southern Maryland Custom Homes & Land

Turns out that policy of surprise eviction may or may not have been slightly unethical, dumb, and possibly illegal.  Remember when Fannie Mae took that gigantic $700 billion government bailout check?  Turns out there were strings attached, and one of those strings was that “tenants in good standing” of properties they foreclosed on were to be allowed to remain in the property.

Did you miss that provision in the 451 page bailout bill?  Don’t worry, so did Fannie Mae, but now that a couple of lawyers from Connecticut have pointed it out, Fannie has decided to comply rather than face a lawsuit.  I think it’s great that SOMEONE is actually looking out for tenants rights, but the decision leaves me with two questions:

• Who is going to manage the tenants and rental properties?  Is this an internal management structure  being planned (bad idea!), are they going to contract it out to local third party management firms (good idea!), or do they even have a plan for this in place yet? (SUPER bad idea!)
• What sort of plans are in place to prevent fraud?  When some people get evicted, they damage the house on the way out.  The financial equivalent would be to rent the house to someone on a multi-year lease for $1/month.  Even more fraudulent would be to rent the house to an acquaintance(accomplice?) for $1/month and then sublet it back from him.  Now you’ve managed to not pay the rent in the 6-12 months, and you’ve got a fixed rent of $1/month, without even having to move after the foreclosure!  What is Fannie Mae doing to protect itself from that?

Unfortunately, I haven’t found any good answers, yet.  The policy itself is excellent, it’s all those pesky associated details that get in the way.  Bear in mind that while keeping these properties occupied will help protect the condition of the home AND neighborhood, it’s also going to force the lenders to bleed even more red ink since the rental income is considerably lower than the sales value, which would skew their earnings statements further.
~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Charles County Real Estate Blog

Why More Investors Are Looking:

Local prices are down considerably.  Homes that sold for as much as $330,000 at market peak are now going for $275,000-$290,000.  Not only that, but the increase of available homes allows buyers to be picky.  Most buyers would prefer to purchase something that doesn’t need work, and your fixer-uppers become harder to sell.  Tough luck for the seller, and music to the ears of a sharp investor.

What kind of Foreclosure are they looking for?

In a word, cheap!  The real estate market still has the most movement under $300k, and getting a home that can be flipped for less than $300k reduces the risk considerably.  For example, if you can find a foreclosure for $160k that needs $30k or less in work, can you sell it for $250k or more?  If so, you may have just found a potential flip!

Factoring in the market slump:

Remember that market depreciation averages 1% per month right now.  If it’s going to take you 3 months to complete a flip, then you should be factoring in a 3% deflation in it’s final value.

How do you find good foreclosure flips?

The key is to be searching, everyday!  I’m up every morning at 7:30 am and the first thing I do is update my list of new foreclosures and new properties that are on the market.  When something comes up, my computer automatically sends it to any investors who might be interested in the property, and if they like it, we go see if it might be worth the investment.

It’s important to move quickly, if a good deal hits the market, there is a good chance that others are looking as well, and you don’t want to miss out.  Last week I wrote an offer on a property in Waldorf that had been on the market less than 24 hours.  I was already competing with 2 other bids!

In summary:

The three things that are most important to a successful foreclosure flip are:

1. Be quick about buying and selling the property
   
2. Make sure your profit margin is solid
3. Know what the sales conditions will be like when you’re done.

If you’ve got that under control, you should be in good shape!

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Charles County Real Estate Blog

Please contact Jonathan Benya for all inquiries/information.

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Southern Maryland Real Estate Blog

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This does NOT mean that you should skip the home inspection!  Quite the contrary, if you’re trying to buy a primary residence, the inspection is absolutely crucial!

Don’t believe me?  Well, would you buy a car without knowing it runs?  Buying a home without an inspection is the same concept.  Does the furnace still work?  Have the pipes burst?  Have termites eaten through the walls?  You just don’t know without that inspection!  I can see the marketing slogan now:

Lovely home with rustic living (furnace is shot, bring blankets), In-ground pool possible (Basement is flooded), and lots of natural light (Termites were hungry)!

Danger Will Robinson, Danger!

All you wanted was a great deal, and instead you end up with a money pit.  While the inspection won’t fix the problems, you are saving yourself from possible FINANCIAL DISASTER by knowing what sort of problems (if any) may exist.  When it comes time to write a contract to purchase a foreclosure, bear this in mind:

1. The home is being sold as-is, and
2. The bank is not likely to do any repairs on the home, so….
3. The inspection is for “informational purposes only” (That’s Legalese for: Don’t even THINK of asking for repairs!)

If you want to keep yourself protected, make sure that any inspection being done for “informational purposes only” has a “walkaway” clause.  This means that if you find something wrong with the inspection that you don’t like, you can cancel the contract, get your deposit back, and find another property that suits you.

Banks are doing everything they can to relieve themselves of liability.  As a buyer, you need to make sure that you and your Realtor are keeping your financial interests protected!

Got questions about buying a foreclosure?  Give me a call!

~Jonathan Benya
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Southern Maryland Real Estate Blog

In comes the concept of the low-ball offer. Low-balling is where you offer considerably less than the asking price on a home. It’s easy enough to write (You always have the right to offer as much as you think is fair), but writing the offer and getting the offer accepted are two very different things!

So how do you convince the banks to accept less than they want for a foreclosure? Well, there’s a couple of ways to increase your chances of getting that offer accepted.

With a buyers market, the more enticing the TERMS of the contract are, the better your chances of getting the deal to closing. Think about what perks you have to offer in the contract. Here’s an example of things that can make your
offer more attractive:

1. Offer a quick closing- The less time the bank has to hold the property, the better off they are.
2. Don’t request repairs- Banks are selling as is, and with a low-ball offer, structure it such that you are contingent upon an INSPECTION WITH WALK-AWAY rather than repairs
3. Avoid contingencies- If you want the banks to consider a low-ball offer, there has to be a good reason. Bogging down a contract with multiple contingencies is a good way to get the offer rejected.
4. Offer cash- With a cash offer, there’s no risk of loans not being accepted, which can be very appealing to the bank.
5. Look for homes with “market rot”- Homes that have been up on the market for more than 150 days are good targets because the bank has been holding them for longer than they would like. They probably need to lower the price, and are more likely to take an offer.
6. Write a letter- Sounds cheezy, but outlining why you’re offering this sort of price can help the bank make sense of the offer. Every little bit helps, and I’ve seen things like this actually make a big difference.

Related Posts:

What Does “AS-IS” Mean?
Waldorf, MD Foreclosure Update for August, 2008
Foreclosure Buying Tips Part 1
Foreclosure Buying Tips Part 2
Foreclosure Buying Tips Part 3

~Jonathan Benya
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Southern Maryland Real Estate Blog

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