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

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

    What most people don’t realize is that the opportunity to buy wholesale foreclosures DOES exist, if you know where to look.  People CAN and ARE buying for as little as 36% on the dollar for foreclosed homes.  The challenge in doing this successfully is two-fold:

1) They’re not selling properties off individually this way.  This is a concept for investors, willing to spend millions or even billions at a time

2)  There are a lot of people claiming to have a viable product to sell.  The lists, also known as "bank tapes"  are difficult to legitimately find.  The risks are numerous, and it’s hard to know if you’re dealing with genuine individuals or not.  The last thing you want to find is that their "tape" has secondary loans, credit card debt and other misrepresentation.

    I’ve been working for months now to try and find genuine sources of product for buyers.  We’ve met with some success, and plenty of inconsistency, false product, and other shenanigans.  Finding a legitimate source of homes for sale in this manner can be a goldmine for a buyer.

    Consider it like this:  If you have $20m to spend on foreclosures in bulk, and you can buy them for $.45 on the dollar, taking on the task of reselling them, even at only 80% of market value can potentially earn a huge return on your money.

    I’ve been able to find legitimate sellers, if anyone is interested in finding legitimate bank tapes and platforms, give me a call and I can put you in touch with them.  Or, if you have any questions about what the process of buying property this way consists of, I’m always more than happy to answer them for you.

~Jonathan Benya

Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-653-8116
Waldorf and Southern Maryland Real Estate
www.teambenya.com

Do Foreclosures Affect My Home’s Value?

    In Charles County in the last 60 days, there have been 12 foreclosures that have been sold, and a total of 135 (resale AND REO) homes listed and sold.  This means that foreclosures make up almost 9% of the total market in terms of sales.

    A lot of homeowners have been wondering how much of a bearing foreclosures have on their own homes value, and it really needs to be evaluated on a home by home basis.  Here is what people need to bear in mind:

• There are 1,487 homes for sale in Charles County today (02/29/2008).

• There are 86 Foreclosed Homes on the market today (a record high in volume, and 5.7% of total market volume).

    If 5.7% of the market’s volume is generating 9% of the total sales, it is obvious that there is a disparity.  Foreclosures are more *likely* to sell.  Why is that?

    Well, there are numerous factors involved here, but it seems apparent that the incentives to buy a foreclosure (namely, the price) outweigh the risks and problems (difficulty communicating with the banks, poor condition, etc.). 

    There’s another way to look at the puzzle as well.  In the last 60 days, 16.5% of the total volume of foreclosures in Charles County have sold.  Only 9.1% of the total homes on the market sold in the same time period (60 days).

    If you’re suffering from difficulty selling your homes because of foreclosures in your neighborhood, it’s important to make sure that your homes best features are being showcased!  Standard resale (i.e., not a foreclosure, short-sale, etc.) has some serious advantages! 

     The biggest things to consider are the differences between your homes and foreclosures when it comes to condition, ability to close quickly, and the ease of contract approval!

What’s The Market Really Like?

For Sellers
     Right now there’s a 12 month overstock on Foreclosures in Charles County, and a 21 month overstock on listings in general!  It’s an intimidating figure for anyone considering trying to sell, and the argument is a "lose now, or lose later" situation for some people, so trying to sell a home in this market is not a decision that should be taken lightly.

For Buyers
    The potential to find a property that is right for you; at the right price is huge!  The difficulty is in easily identifying the best deals.  Because there are so many properties available for sale, you need to be careful to ensure that you’re seeing the best possible deals out there.  This is why working with an experienced qualified Realtor is so important!

Related Links:

Current (3/1/2008) List of Foreclosures in Charles County (PDF Format)

Current (3/1/2008) List of Foreclosures in St. Mary’s County (PDF Format)

Current (3/1/2008) List of Foreclosures in Calvert County (PDF Format)

If you have any questions about the current Foreclosure Market in Southern Maryland, feel free to ask!  If you’d like to try and find a deal by searching for a foreclosure, I’d be more than happy to set up an automatic search for you so that you can find out about the best deals as soon as they hit the market!

~Jonathan Benya
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Waldorf and Southern Maryland Real Estate
www.teambenya.com

    The New York Times has a good article discussing the widely varying views concerning the new proposal.  Let me first give a brief description of the plan Bush announced to help bailout homeowners.  This proposal will only work for homeowners who:

•     Took out their loan between January 2005 and July 2007 and whose rates are set to increase between January of 2008 and July of 2010
• Have less than 3% equity in their homes
• Are current on their payments (or no more than 60 days behind)
• Are able to handle their current lower rate, but will not be able to handle a higher payment.

    Why this plan makes sense:

• An estimated 250,000-360,000 homeowners may now be able to avoid foreclosure
• It is being industry-led, not government mandated, meaning each lender can set their own criteria for approval
• Bank losses are estimated to be 40%-50% on a foreclosure, this should help reduce their red-ink margins

    Why this plan doesn’t make sense:

• People deemed to be hopelessly in debt may not be qualified by their lender
• People with higher credit scores may be deemed ineligible because of their higher credit rating
• The plan is seen by many as a type of reward to people who spent beyond their means, and could encourage reckless spending
• Investors are unhappy with increased income returns being frozen
• The plan is voluntary rather than government mandated, meaning investors can choose to not participate in the program.

I’m sure there’s going to be plenty of debate for weeks to come on this plan, but until we have a better idea of how many people will be affected, it’s very hard to say how good this is for the homeowners and how bad it is for the investors.  I admit I’m a bit of a bleeding heart, and right or wrong, I think any help like this to homeowners is a positive step.

P.S.-  To Mr. George Bush, who made the lender announcement publicly in an attempt to improve his administration’s image;  Get your facts right before you announce a new initiative like this!

     Wow, this has been an incredibly difficult year to try selling a home!  As I’ve mentioned in previous blogs, Countrywide Home Loans was the first to take action to help ease consumer strain and keep people from being foreclosed on.  It may be to early to tell, but it looks like we’re starting to see signs of stabilization in the local market, hopefully other lenders will contribute further and help ensure market stability.

What Looks Good:

     The average number of days on market (DOM) in Charles County, MD has actually declined!  DOM actually fell from 118 days to 115 days.  This doesn’t mean that houses are moving any better on the marketplace, however, simply that the average time on market until it is sold/rented/withdrawn has been reduced.

     The number of homes available for sale on the market in Charles County, MD has gone down!  Traditionally the coming of the holiday season means a gross reduction in the number of people who are trying to sell as well as looking to buy.  Often times shopping for a home around Christmas means that there is a strong potential to get a better deal, but moving when there is snow on the ground is difficult and inconvenient, so many people opt to wait for better weather.

     Number of sales for October did not see significant decline! This is very important.  Month after month we have seen a decline in the number of sales locally.  The fact that we are seeing a possibility of leveling out may indicate a trend towards improvement, but don’t expect to see significant improvement before May ‘08, and definitely not to the robust sales and gains we saw from 2003-2006!

    Number of pending sales for the month of October have increased!  This is the first increase in pending sales that we’ve seen since February!  Traditionally from February on through July/August, real estate pending sales trend upwards and then downwards in the fall.  It’s too early to tell what the impact will be, but seeing a rise in pending transactions right now is very good news.

What Needs Improvement:

     Sales are currently at their lowest point in the past six years. Meanwhile, we
haven’t seen the direct holiday season impact yet (December is usually
the worst month of the year for real estate sales)!  What is promising about this is that pending sales are up, contrary to traditional market trends.  At best right now I think we’re hoping to see the market remain like this until the spring, but I suspect that we’re going to see further decline through the holidays, which is going to further frustrate homeowners and further depress housing prices.

Wrap-up- What Does This Mean?

     Essentially, it means that the market is still in very rough shape and is going to need time to work itself out.  We’re not looking at a 3 month or 6 month turnaround here, and we’re not going to see another big boom like we were in for a very long time, possibly decades. 

     For Homeowners, I suspect you are going to find that the market continues to decline, perhaps as low as 15% from 2006 sales values once all is said and done. If you’re trying to sell your home right now, I highly recommend you actually go out, view your competition, and try to assess the value of the other homes your potential buyers will be seeing. 

     Also, make sure that your agent is being aggressive in trying to get your home sold!  Agents are having a very hard time, our marketing costs have easily tripled because we’re fighting to make sure our listings are actually seen!  Part-Time agents and small-volume agents are hit especially hard because there’s so much less selling right now, so choose your agent carefully.

    For Home Buyers, if you’re waiting for the market to bottom out before you jump in, be very cautious about how you do it.  Yes, Values are down 8%-10%, and they may go as low as 14%-15%, or the may not.  Also, rates are very low, and they may or may not go down as well, but keep in mind that the last time the rates dropped, the lending criteria went up, making it harder to get the same deal on your loan despite a drop in prime rates!

     Lenders are more cautious now, as they should be, but you don’t want to hold out to save another $10,000 on the price of the home if the monthly payment is going to be the same (or higher) due to more stringent lending criteria.  There’s simply no sense in paying the lender more because you waited until the homeowner took that extra $10,000 discount off his home.

Jonathan, Marsha, & Thomas Benya
~Team Benya
Century 21 New Millennium
301-653-8116
Website

Please feel free to contact us with any questions, concerns, thoughts, etc.  If you are considering buying or selling a home, remember that at Team Benya, you’re getting 3 agents for the price of 1;  It just makes sense.