Tips to Buy a Foreclosed Home in the Frederick Real Estate Market in 2009

With 1 in 10 homeowners either in foreclosure or in default nationally, foreclosures are driving the real estate market, and its not any different for the Frederick Real Estate Market.  Recent estimates say that in the next four years, 8.1 million homes — 16 percent of all mortgages — will be in foreclosure.  If foreclosed homes, or REO's, are going to be a major driver of the Frederick Real Estate market for the next 4 years, we will have to learn how to make the best of the situation.

Karen put together a tutorial with our best tips for buying a foreclosure in Frederick.  We are making 2 main points in the title above: 

1. We are giving tips for the Frederick Real Estate Market, because all real estate is local.  These tips don't neccessarily work in other locations.  For instance, Austin Real Estate agent Garreth Wilcock writes that in his market, there aren't too many foreclosures, so they aren't driving the market. 
2. We are giving tips for the Frederick Real Estate Market in 2009, because the market could be totally different in the years after.  (We've learned from the volitility of these past few years, haven't we!) 

We've experienced two major tactics from the banks as they've tried to unload their properties in 90 days or less:

1. They list the home at market value, as best interpreted by the BPO, Broker Price Opinion.  Then they systematically lower the price every 2 weeks until some smart buyer snaps it up.  They end up getting it at 10 or 20% below market, insulating themselves against further market decline, which is still possible thoughout '09 and '10.   Or,
2. They list the home at 20% to 30% below market value and create a bidding war within the first 2 weeks on the market.  The lucky buyer usually wins out by offering more than list (which, remember, is 20% to 30% below market already) and ends up getting it somewhere in the neighborhood of 10 to 20% below market, thereby insulating themselves against further market declines.

 Here are our observations about winning in the Frederick REO real estate market:

1. Work with an experienced, knowledgable Frederick Real Estate Agent.  You need to be able to trust that your agent knows the market, knows how to negotiate, and knows how to guide you to get the best deal possible.  If you don't know that a property is already 30% below market, and you bid low, thinking you'll get a 'steal', someone may out-bid you, knowing that it is already a steal.
   
2. Make sure your Realtor is technically experienced and can go over the bank's addenda with a fine tooth comb.  Every bank has their own addenda that have been created by their legal team, and these addenda can supercede the MAR (Maryland Association of Realtors) contract or the Regional contract of sale.  We just saved a buyer a chunk of money by carefully reading the paragraph about the transfer taxes.  We insisted that the addendum be modified, which would not have been possible later, after the deal was ratified.  Don't assume that every agent understand the details and are careful enough.
   
3. A bank, unlike most sellers, is in the loan business, and your financing will receive more scrutiny.  They don't want the house back on the market in 30 days because your loan didn't go through.  Make sure you have a strong lender letter, preferably from a direct lender, not a broker.
   
4. Don't forget cash is King!  If there is little cash in your offer, and you are in competition, and you more than likely will be, they most likely will not look favorably on your offer.
   
5. Home inspections, if they are accepted at all, typically are done without remedy, except to provide an out for the buyer, if they find something they just can't live with.  The banks, while they hope you enjoy the home, will in no way make repairs to a home they have never been in. 
   
6. Speaking of home inspections, remember that more than likely the homes have been winterized, meaning no water, no electricity.  Bring a flashlight, and be aware that even the best home inspector is limited.
   
   Buying a home in the Frederick REO market, in all truth, does carry some risks, but armed with knowledge, some cash, and the right agent, any buyer can secure a great home at a price enough below market to insulate themselves for the possible further decline in values.  Contact us to see some of these sweet deals.

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                                    The Highland Real Estate Group                      
        Chris & Karen Highland * Frederick County MD Real Estate Agents
                                Specializing in Frederick County Real Estate 
                                                 301-831-9947
                                            Real Estate Teams, LLC
                                               isell4u2@msn.com      
                                                   Pictures of Frederick