Millie S. Kanyar, Watson Realty
Q. With more foreclosures anticipated to hit the market, how do we guide buyers wanting to purchase a foreclosure?
A. Although there are still many homes that may end up in foreclosure I think banks are starting to realize that there are better approaches to the problem. More effort is being made to work with the existing homeowners and where possible a more common sense approach to transitioning those who can no longer sustain the loan payments. The good news is that banks are starting to release the foreclosed homes they have on inventory into the market. They are taking a measured approach and as a result they will probably help us meet the demand for homes in the market. This should help keep prices from dropping like before. The last time we had foreclosed properties hit the market we had an increase in inventory and a decrease in demand. Today we have an increase in demand and a low level of inventory. We are seeing buyers that were on the fence electing to take action and buying homes. They are realizing that we are bouncing along the bottom and current prices and interest rates will not last. The word is getting out that multiple offers are happening more often and prices are leveling off or even starting to rise. What buyers need to know is that they have to be more realistic in making offers if they really want to get the property. The highest and best approach is getting the job done. There is increased competition for those homes that are in attractive areas and in good condition plus the investors are also taking advantage of this market. In addition, the rental rates are on a rise and are expected to continue to increase. Therefore, for the time being it is less expensive to buy than to rent. This is the perfect formula for investors and for potential homeowners who may have been waiting to come to terms with the need to take action now if they want to be winners in this market.
Q. What are some of the risks of buying a foreclosure?
A. Buying a foreclosed property is not without risk. There are some that require repairs and may still have issues with unpaid homeowners association fees or liens. However, with an owner title policy on the home a bonafied buyer for value is protected from claims on title. Any buyer today should take time and do a thorough due diligence before purchasing those properties. In addition, they should seek legal representation to insure that they understand the type of title they are receiving and review any exceptions on the title policy they are receiving at closing. They should also perform a complete home inspection and test all systems before they close. Many of the REO or bank owned properties are those bought by the investors and everyday buyers. There are some folks that buy properties when they are sold at the court house steps but the majority of the foreclosed homes are bought from the banks. Buyers should be aware of the condition of the property, the cost associated with making the repairs necessary and insure that they have title insurance. The investors today are buying these REO properties and fixing them in order to make them eligible for financing. Many of them are not and as a result are sold for cash at very attractive prices. Today, the investors buying these types of homes are able to flip them quicker than before and are making a good return on investment.
Q. We hear about 203K loans for distressed properties. How do they work?
A. The 203K loans are a great product if the person can qualify for the total loan amount. Seller’s can use this tool to market their homes and show buyers how they can make repairs or improvement to the home they are purchasing. Buyers can use this type of loan to turn a home that is not in top notch condition into a more desirable home. The lender providing the loan will: want to have several bids from licensed contractors to make the repairs on the home, they will review the credit worthiness of the buyer and assess the value of the home before and after the improvements. If the property will appraise at or above the total loan required for the repairs and the buyer can qualify for the loan and payments we have a win-win for all. Depending on the repairs the buyer may be able to move into the home while the repairs are being made and in some cases even help with the repairs. It will depend on the amount of repairs required and the lender. This is also a product that can be used by investors who are looking to finance the improvement to the homes they buy which are in disrepair. They will need to make an analysis of the breakeven point on the property and make a complete analysis of the potential return on investment for the property as part of their portfolio.
Q. Do you see more investors or homebuyers purchasing foreclosures this year?
A. We are seeing both. The investors who want to take advantage of the increasing rental rates are seeing an opportunity to increase their portfolio of homes and improve their return on investment. They are not only looking at foreclosed properties but short sale properties as well. They have the advantage of being able to wait for the process to work while typical home buyers are not willing to wait or can’t wait for the lenders to respond. Investors are actually helping those in foreclosure situations to take advantage of a short sale as a way to transition out of their homes with a sense of dignity. The buyers that were hesitating because of the downward spiral of home values now see a leveling off and in some cases seeing an increase in the price of homes that are ready for occupancy. The wealthy that can afford to buy are taking advantage of the current prices and investing in second homes or investment properties. Without a doubt we are not just saying it’s the right time to buy the market is recognizing that it is a great time to buy. Nobody wants to miss the opportunities in this market and even with more foreclosed properties being released our current market is absorbing the inventory. The end result is a leveling off in the market. The only hitch in the process is financing and the ability of those wanting to obtain financing while rates are still at attractive levels. The current interest rates are still at all time lows but they will not remain there and are potentially going to increase by year end according to many of the economist today.
Q. For buyers unsure about purchasing new construction verses a foreclosure, how do we educate them on the difference?
A. The difference is clear, with one you are the first owner while with the other you are the second, third or other owner. The new homes are move in ready and without any title issue as a rule. They are at very competitive prices in this market and include warranties that give the buyer peace of mind. The area builders are providing excellent buys and are offering not only assistance with closing costs but many are sweetening the pot with enhanced features. Buyers should know that builders may also require a pre-approval through their preferred lenders. There are also new builders that are taking advantage of the low prices of home lots and properties in poor condition. They are able to purchase the lot or purchase a home in poor condition and re-built the home. This gives a buyer an opportunity to have newly constructed home in an established neighborhood. Without a doubt buyers have a great opportunity to cash in on the saving the market is currently providing even with new construction.