- The Washington Times - Friday, May 30, 2008

For a homeowner, the word “foreclosure” means nothing but doom and gloom. Home buyers, however, often think of opportunity when they hear the word. Given the recent surge in foreclosures in the Washington area, there are more opportunities for buyers to purchase these properties. Television shows such as A&E;’s “Flip This House” may make it seem easy to buy and sell distressed properties, but it’s often more complicated, and less profitable, than consumers expect.

“We get a lot of people who come to us with buying foreclosures in mind,” says Stephen Israel, president of Buyer’s Edge, a Washington-area real estate firm that only represents buyers.

“But there’s a big confusion about the difference between a short sale and a property that has already been foreclosed on,” he says.

A foreclosure happens when a homeowner fails to make mortgage payments, causing the lender to take back the home. This foreclosure process can be lengthy.

A short sale, on the other hand, is when a property is sold for less than the loan amount, causing the lender to come up “short.”

“Short sales can happen when people see they are in trouble and want to negotiate with the bank to sell their home for less than the value of the mortgage,” says Ruth Dickie, a manager of Long & Foster’s Bethesda Gateway office.

“This is a part of the market that didn’t exist in the past, but it is more difficult than buying a foreclosure,” she says. “When people hear how great a deal foreclosures are, they may be lumping together foreclosure properties and short sales.”

Because short sales are much harder to find, and because the bank must approve the sale before it can go to settlement, most buyers will find that foreclosures are much easier to buy.

“My experience to date in writing short-sale deals is that none have actually gone through as short sales,” Mr. Israel says. “A friend in California has had the same experience writing short-sale contracts for his clients. Here’s the thing: Until the bank has foreclosed and actually owns it, you are kidding yourself that you are going to go in there and get a great deal. Short sales have such a horrific history of being worked out - you are just going to spin your wheels.”

Once a property has completed the foreclosure process, the lender has possession and ownership of it. However, this isn’t something banks want at all. They aren’t in the business of holding, renting or selling homes.

That’s why you can sometimes buy a foreclosure at a discount. The bank just wants to get back to banking, so the bank may be willing to sell at a lower price. The U.S. Department of Housing and Urban Development (HUD) also has a number of homes it needs to sell.

Many folks manage to buy these homes at a great price, so it can be a good investment, but is getting a deal the most important thing?

“Especially with first-time buyers, our job is to help them make a good home-buying decision,” Mr. Israel says. “To learn to look at properties and correctly analyze them. We’ll look at the structure, the neighborhood, proximity to Metro and shopping, all the things that make a home attractive to you.

“We help you look for the best house in the best location, and then to figure out the value of that home. If you are simply looking for something cheap,” he says, “then you are missing the whole point of being a smart home buyer.”

While there are more foreclosures available to buyers today, there were also more than 52,000 regular home listings to choose from in April. That’s dramatically higher than the 13,000 homes that were available in April 2004.

When the market is flooded with homes for sale like it is now, sellers need to be aggressive because they are competing with thousands of other sellers.

So, you will find a lot more homes to choose from, and probably less hassle and headache, if you aren’t focused only on buying a foreclosure.

Besides, banks are competing to sell their homes just like any other seller.

“Realize that the bank has already lost a lot of money,” Mrs. Dickie says. “So the house, when it comes on the market, is going to be listed at the market rate. The bank wants to recoup as much as they can, so they are going to go through the comps with their Realtor, just like any other seller.

“Comps” are recent sales of comparable homes near the home being sold. Because banks want a good price for the property, they are going to study what homes are selling for before they choose a listing price. It’s the same process you would go through with your Realtor if you were selling.

While banks want to sell for the best possible price, they are also motivated to get the properties off their books.

“The banks have looked very carefully at the market, and they want to position their properties so they will sell first,” Mr. Israel says. “So they are willing to negotiate, and there is absolutely no reason not to think you can get a good deal. You can.”

For all these reasons, working with a buyer’s agent who will represent your interests is vitally important. That buyer’s agent might not be the “foreclosure specialist” you found online.

While you can go on “foreclosure bus tours” in the Washington area to see some of the properties that are available for sale, you should be aware that as you ride on that bus you’ll probably receive an unending sales pitch.

Also, you have to wonder why these wonderful properties are still available for you to see on your bus tour. If they are so great, why hasn’t a savvy investor, or your tour guide, bought them already?

If you are serious about buying a home, maybe even a foreclosure, get yourself a reputable Realtor to be your buyer’s agent. As your representative, this Realtor will be focused on your best interests, will show you all the homes on the market (not just foreclosures) and will help you avoid common pitfalls.

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