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The Ins and Outs of the Foreclosure Hunt

by Joe Marhamati

It is no secret that buying a foreclosure can be an arduous process that usually only yields results for the savvy, patient and resilient homebuyer. In this article, UrbanTurf will attempt to make the process, from searching to pricing, more transparent.

Redfin currently lists 219 foreclosures on the market in DC, with more than half of those east of the Anacostia River, and a good chunk of the remainder scattered downtown and in Hill East. (Note: While the majority of foreclosures are centered in certain sections of the city, the market is such that finding bank-owned properties in neighborhoods like Dupont Circle and Kalorama is becoming more and more common.)

It is very misleading to think that the Redfin count above represents the total number of foreclosures in the city, though. Banks like Wells Fargo and Bank of America keep their own records of foreclosures, which contain properties that are either not listed in traditional sources or have not yet hit the market (referred to as “shadow inventory”). Similarly, many foreclosed properties once owned by now-shuttered banks are in the hands of the FDIC, which also keeps its own database.

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Foreclosure in Columbia Heights

Astute homebuyers and investors in the market for a foreclosure will use the databases to their advantage. If a property is discovered by a potential buyer prior to hitting the market, occasionally realtors will show the home while it’s being readied, meaning that a first-day bid is possible. Many banks will keep a property on the market for up to 10 days to see if a bidding war ensues, but it’s not uncommon for an offer that is submitted on the first day to be accepted quickly if it is at or near the list price.

As for the condition of the foreclosures out there, Long and Foster’s Justin Paulhamus told UrbanTurf that while plenty in DC are truly distressed and the work to salvage what’s left may not be worth the time, some require very little work and are great opportunities for first-time buyers to purchase homes they might not have ordinarily been able to afford.

However, pricing remains one of the big mysteries when it comes to foreclosures, according to Paulhamus.

“I’m still trying to figure out our financial institutions’ methodology,” he said. “Some banks market and sell their own properties, others contract out to vendors that then work with realtors to sell the property. In either case, a price threshold must be met, and that is determined by the bank’s internal analysts and a Best Price Opinion (BPO) provided by a local realtor.”

Paulhamus explained that the local realtor looks at the subject home and rates it across several factors, compares it to others within a very specific area, and then suggests a range of pricing that the bank takes into consideration. Paulhamus noted that this methodology is not ideal as the combination of untrained agents making incorrect pricing decisions and banks wanting to set the price higher can result in a price point that can be fairly off-base.

“What we are currently seeing in the DC Metro area is that homes have been incorrectly priced and price adjustments have been made in order to bring back some stability in the market and correct an inflated market,” Paulhamus explained. “Foreclosures have exacerbated the problem as realtors are still largely responsible for setting the price as the bank’s first line. If the agent isn’t properly trained and equipped with an arsenal of resources, the property might be priced incorrectly. Conversely, banks may disregard what an agent proposes and set the price higher. In these cases, the property stagnates and subsequent corrections occur.”

Pricing, time and all the other headaches aside, it can still be worth it. Full disclosure: I bought a foreclosed condo in good shape at well below list price, but not before wrangling with the FDIC, its contractor, legal representation and various others for the better part of three months. The key was staying in constant communication with everyone involved to ensure that my offer and the overall transaction was processed as quickly as possible.

If you have had an experience with foreclosure hunting, good or bad, let us know in the comments section.

See other articles related to: foreclosure, editors choice

This article originally published at https://dc.urbanturf.com/articles/blog/the_ins_and_outs_of_the_foreclosure_hunt/1922

8 Comments

  1. Brian said at 3:16 pm on Tuesday March 30, 2010:

    I’ve purchased 2 forclosures in Congress Heights.  They were both in need of repair and filthy.  I spent money in repairs, but one is a 2 unit building (Congress Heights has TONS of these types of buildings) which is making money, and the house I’m living in appraised for double what I paid for it in 6 months. I might be a few years early for the DHS headquarters, but its a good start for those of us who can’t afford or refuse to pay 2500 a month in rent. 

    I’m not rich and I never thought I would own a home in DC. So I would say this has been a great experience for me.

  1. Sandor said at 4:22 pm on Tuesday March 30, 2010:

    Good piece. I bought a foreclosure about four months ago in Columbia Heights for well-below the market rate. My buying process only took about two months, and it was well worth it.

  1. ANNON said at 11:42 pm on Tuesday March 30, 2010:

    I AGREE THAT THIS IS A GOOD PIECE. MY FIRST HOME HAPPENED TO BE A SHORT SALE, WHICH IS USUALLY AN EVEN MORE COMPLICATED PROCESS BUT MINE ONLY TOOK A MONTH. I CLOSED 29 DAYS AFTER CONTRACT WAS PLACED. SO LOOK OUT GUYS, THERE IS ALWAYS HOPE. AFTER SEEING WHAT HOUSES ARE SELLING, 1 BLOCK AROUND ME IN COL HEIGHTS, ID SAY THAT MY HOUSE WOULD APPRAISE AT AROUND 90% HIGHER THAT WHAT I PURCHASED IT FOR 1 YR AGO. BE WARE I PUT 6 MONTHS OF SWEAT EQUITY INTO IT. BUT IT WAS WELL WORTH IT.

  1. Matt said at 8:28 am on Wednesday March 31, 2010:

    I also bought a foreclosure back in August ‘09. I didn’t have nearly the headaches that people associate with a foreclosure, but that may be a result of offering more than the asking price. This article made me think, for those that bought a foreclosure, were you told to only submit your best and final offer? Is this a common practice?

  1. hoos30 said at 11:14 am on Wednesday March 31, 2010:

    I just recently bought a foreclosure and would NOT recommend it for the first-time home buyer. As far as I could tell, the seller was a Commodore 64 computer stashed in someone’s basement and the listing agent was not much more alert. We were 60 days from contract to closing and all of that time was us and our bank waiting on the seller to get their %^$# together: title, utilities, etc.

    Then you have to consider the surprises: how old is that water heater? There was a flood when?  These are things your home inspector will not be able to answer with certainty and there isn’t a person on the other end to ask.  Surprises cost money.

    In the end, we feel like we got a good deal (about 20% below comps) but the process is not for the faint of heart. Luckily it was our third time at the rodeo so we knew exactly what to look for.

  1. hoos30 said at 11:30 am on Wednesday March 31, 2010:

    @ Matt: We went with a speedy, low ball offer far from our “best and final” and they accepted. We visited the house and put in our offer less than 24 hours after listing…we liked it and didn’t want to wait for the weekend for other greedy eyes to see it grin

    I can’t imagine why someone would use the “best and final” strategy on a foreclosure…seems like that is missing the whole point.

  1. Citi said at 3:29 pm on Wednesday March 31, 2010:

    I bought my condo as a foreclosure last April as a first time home buyer. My experience was smooth, and I am very happy with the deal - the seller took my first offer, which was approx 30k below the asking price.  The only snag I experienced was with wanting to use my VA certificate.  The condo was not VA approved (I learned it’s very difficult to find VA approved condos, foreclosure or not).  The entire process took approximatley two months.  The property was in great condition and I only needed to make some cosmetic repairs.

  1. Property Hanoi said at 3:40 am on Tuesday August 17, 2010:

    Thanks for sharing these interesting and informative posts.

Comments are closed.

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