Buying a Home
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Buying a home is an exciting and complex adventure. It can also be a very time-consuming and costly one if you're not familiar with all aspects of the process, and don't have all the best information and resources at hand. One of my specialties of our office is representing the best interests of buyers throughout the home buying process. My staff will provide a comprehensive and high-quality service which can save you time and money, as well as make the experience more enjoyable and less stressful. If you're like most people, buying a home is the biggest investment you will ever make. So whether you're buying a starter home, your dream home or an investment property, why not take advantage of our experience as your local market expert and make the most informed decisions you can, every step of the way? |
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The following articles provide useful information and are a great place to start if you're considering buying a foreclosed property.
| General questions |
| Q) What types of properties are in your database? |
| A) Our database contains only foreclosed properties from numerous banks and asset management companies. Daily, we get this information from these sources and it is accurate.. |
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| Q) What information does your website provide? |
| A) This website provides the latest list of foreclosed properties to currently for sale through our office. |
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| Q) What is a foreclosure? |
| A) A foreclosure is a situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract. |
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| Q) Can money be made purchasing a foreclosure? |
| A) Yes, you can make money. Just like any other investment, you need to get out your calculator and “work” those numbers. Your need to identify the probable resale price, subtract the closing cost on the resale, subtract the closing cost on the purchase, subtract the cost to renovate or repair property and finally subtract the purchase price to arrive at the profit. There are plenty of opportunities for investors, first time buyers and realtors who can capitalize on this data to make a fortune. You can make money buying these properties at a discount. If you plan to buy to live in it, get a significant amount of equity up front with foreclosures. There are no guarantees with any investment, but all across the country, people earn almost immediate income by buying and selling foreclosure properties for huge profit. Landlords are able to buy and rent foreclosures, producing positive cash flow and long term wealth accumulation. |
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| Q) How current are the foreclosure listings on your website? |
| A) Once the bank or asset management company lists a property with us, we immediately put it up for sale and update this website. The same applies if they reduce the price. |
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| Buyers, Investors and Bargain Hunters |
| Q) How do banks arrive at the list price? |
| A) It is a very difficult question to answer!!! One of the owners of this web site is a real estate broker and has been listing foreclosed properties for over 16 years. Based on his experience, here is what he has to say. When a bank forecloses on a property, they assign it to a real estate agent or broker. This individual gains access to the property and identifies the list of repairs needed to bring the property to the condition of other properties in the area. It is very rare but sometimes these foreclosed properties are in move in condition but most of the time they need to be repaired. The broker prepares a report called the Broker Price Opinion (BPO) and submits it to the bank. In that report they provide the bank with two values – an “AS IS” and a repaired value. The repaired value is obtained by identifying 3 listed and sold properties similar to the foreclosed properties and making the necessary upward or downward dollar adjustments to bring the foreclosed property in line with the listed or sold property. The listed properties are the properties currently for sale. The sold properties are properties sold in the past 6 months. They compare the features and condition of the foreclosed property to the listed and sold properties and arrive at a repaired value. They then identify the cost of the repairs, subtract the entrepreneurial discount and arrive at the “AS IS” value. The entrepreneurial discount is the profit made by an investor. The “AS IS” value is the price an investor is willing to pay to assume the risk to purchase the property. Simultaneously, the bank has an appraisal done on the property. The appraisal has the “AS IS” and repaired value. The evaluation department at the bank reviews the agent’s BPO and appraiser’s appraisal and makes a recommendation to the REO sales manager. Sometimes, the bank will repair a foreclosed property and sometimes they will not. It all depends on the amount of money spent to repair and the probability of obtaining a high price. If they feel that it will not be profitable to repair the property, they will sell it “AS IS”. Additionally, most banks don’t repair these properties and sell it in the existing condition. Before a final list price is given, the bank identifies the amount of the loss. The loss is the outstanding mortgage balance, interest receivable, foreclosure and attorney cost, current carrying cost less the potential sales price. If the loss is high, they are more inclined to list the property above the BPO and appraisal value. If the loss is low, they will list at or below the BPO and appraisal. It also depends on the market condition in the area, whether it is a buyer’s or seller’s market. In a seller’s market, they will list it on the high side and sell it “AS IS. In a buyer’s market, they will list at or below market, sometimes repair the property and provide closing incentives to a buyer. It also depends on the size of the bank and their urgency for new money. Based on certain criteria set by the Federal Reserve, each bank needs to have a certain amount of cash as a percentage of total assets. If that percentage is low, they will be motivated to sell the foreclosed property at a discount. If that percentage is high, they may stick to their price. Additionally, if the bank has a property for sale for 30 to 60 days and there are no offers, they will start reducing the price. The amount of the price reduction varies. The listing broker provides a monthly report to the bank identifying the new properties on the market, properties sold in the past 30 days, number of buyers who looked at property, number of sign calls and a new recommended price. The bank will either take the broker’s recommendation and reduce the price accordingly or lower it below the recommended price or stay above the recommended price. If there is a price change, we will notify you via email. So there is no magic formula to determine how they arrived at the list price!!! It is a matter of finding the right property at the right price. |
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| Q) Do I need to buy these foreclosed properties through a realtor? |
| A) Not necessarily. Realtor® are members of the National Association of REALTORS® and the local associations that manage MLS the Multiple Listing Services. The Multiple Listing Service is a database of properties for sale used by real estate agents in different parts of the country. These REALTORS® are licensed in the state they operate from. If the foreclosed property is listed by a real estate agent, then you need to either use that agent or any other agent to show and buy the property. If the foreclosed property is not listed by a real estate agent, you can contact the bank or mortgage company directly to buy the property. When you work with a realtor, they will be able to provide you with properties comparable to the foreclosed properties so you can identify if you are getting a good deal. You will need the services of contractors, home inspectors and closing or settlement companies. These realtors will be able to provide you with that information and guide you along the way. |
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| Q) Is there an advantage in buying the property from the listing broker? |
| A) Yes there is. In a real estate transaction, the listing agent lists a property for a seller. The selling agent brings interested buyers to the property. Most of the times the listing agent represents the seller and the selling agent represents the buyer. The selling agent shows the property to the buyer, writes the contract (depending on the state) and coordinates everything needed to consummate the sale. The listing and selling agent get paid their portion of the commission. If you buy the foreclosed property directly from the listing agent without a selling agent, that agent gets both sides of the commission. So the listing agent is more apt to provide you with more information like the motivation of the seller, previous offers that came in on the property, the last price seller rejected. This information is crucial in obtaining a good deal on the property. On the flip side, if you have an established relationship with a selling agent, that agent can try to obtain the valuable information from the listing agent so you can make an informed decision. |
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| Q) How do I make an offer on a foreclosed property? |
| A) If you like a foreclosed property you can ask the agent who showed you the property to write the offer. Please ensure that you cranked all the numbers before you write the offer. Make sure those numbers are accurate. Additionally, present the offer with a pre-approval letter from your mortgage company or source of funds if it is a cash transaction. Most banks will not negotiate an offer without that approval letter or confirmation of cash. If you find a property and then go through the approval process, you may lose out on the property if there is another buyer for the property. When the bank sees that you went through the mortgage approval process, they are motivated to work with you!!! |
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| Q) What is the formula to identify the profit on a foreclosed property? |
| A) Identify the price you can sell the property if you repair it $____________ Subtract the closing cost on the sale $____________ Subtract the closing cost on the purchase $____________ Subtract the cost of the repairs $____________ Subtract your monthly carrying cost $____________ Subtract the purchase price $____________ Profit $____________ The lower the purchase price the higher the profit. If you intent to hold on to the property, that profit is the equity you will have on the house. Make sure that your numbers are accurate. |
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| Q) What is the condition of a foreclosed property? |
| A) 98% of the foreclosed properties need to be repaired. The other 2% are in move in condition. The condition of the property varies from a minor paint job and carpet replacement to a tear down of the property. There also could be structural or mechanical or electrical or plumbing issues or a blend of everything. It varies from property to property. Once you identify the cost to address these issues and bring the property back to marketable condition, you will see the potential to make money. |
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| Q) Can I have a home inspection on a foreclosed property? |
| A) The bank will allow a certain number of days to do a home inspection. Sometimes they will not allow a home inspection period which means that the buyer needs to do their due diligence prior to writing the offer. After your home inspection period, you need to identify whether you will proceed or get released from the transaction. Bear in mind these properties are sold in “AS IS” condition and the bank will not repair anything. When you get into these transactions, it is crucial you budget for these repairs and not expect the bank to address them. |
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| Q) Is it better to finance these properties or buy with cash? |
| A) It depends. Based on your financial situation, you can buy these properties for cash or finance it with a conventional loan or VA or FHA or hard money lenders. Some buyers take a home equity loan on their existing property and buy the foreclosed property with cash. Some lenders have programs to include the cost of the renovation or repairs into the mortgage. If you are financing the property, get yourself approved by a lender before you put an offer on the property. The lender will give you an approval letter or commitment letter based on your financial qualifications. |
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| Q) Is the bank more flexible on the sales price on a cash transaction or a mortgage? |
| A) Cash is KING!!! If you buy a foreclosed property with cash, there will be some flexibility on the sales price. The bank is motivated to work with cash buyers because they don’t have to worry about the buyer not obtaining financing. Some mortgage companies will not finance the property if there is an environmental concern or major repairs needed. In these cases you will need to buy with cash. |
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| Q) How can I finance these foreclosed properties? |
| A) There are different ways to finance these foreclosed properties. The critical factor is the condition of the property. Depending on the condition of the foreclosed property, you can get a FHA or VA or a conventional loan. You will need to identify the loan limits for FHA or VA. Your local bank or mortgage broker will be able to provide competitive rates and terms. There are some lenders who will incorporate the cost of the repairs or renovation into the mortgage amount. You can form groups of investors who can pool in their money in exchange for a percentage of the profits you will make when the property is resold. This group can be family members, relatives, friends or investment clubs. You can use lines of credit from home equity loans against your own property or from credit cards to fund your deals when you are first beginning. You can also use hard money lenders who are in the business of providing loans for real estate deals. Your real estate agent will be glad to provide you with contact information for local banks, mortgage companies, mortgage brokers and hard money lenders. |
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| Realtors |
| Q) If I am a realtor, how does this web site benefit me? |
| A) Wouldn’t you want to be the first person to show and sell the foreclosed property? Well, now you have an opportunity!!! If you have buyers looking for foreclosed properties, go to MRIS & input listing agent's name Gladwin D'Costa.and click search button. All the properties will show up. Additionally, you can task MRIS to email you if set it to prompt you!!! This way you don’t need to search the web site daily. Bear in mind, on most MLS systems, the foreclosed property will be listed like any other property with no indication that it is a foreclosed property!!! By setting your search criteria on MRIS to email you with new properties or price change of current;y listed properties, you can get an edge over your competitors, sell more houses and make more money!!! |
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| Q) As a realtor, can I buy a foreclosed property? |
| A) Yes you can!! You can make money listing and selling real estate but the big dollars come from buying and selling foreclosed properties!! You are familiar with the area and the houses in your area. You can immediately tell if the property is a good deal!!! |
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| Q) As a realtor, if I buy a foreclosed property, will I get a commission? |
| A) It all depends on the seller of the foreclosed property. Sometimes they will pay a commission and sometimes they will not. You may want to ask the listing agent. It is nice to get a commission on the purchase of the property but on the flip side, depending on the price, the commission may not be significant if you get a good deal on the property!!! |
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| Q) I am a realtor. Can I be notified if a seller reduces the price? |
| A) Yes you can. The web site will email you if there is any price change on the property. On the web site, after you tag the property, the system will notify you via email. This way you can notify your buyer immediately!!! Buyers will be more confident working with you because you are looking out for them!! |
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| Q) As a realtor, can I be notified if the property is under contract? |
| A) Your time is very valuable!! It is the most frustrating thing for a selling agent to go through the hoops, write an offer on a property and realize that the seller accepted and offer a couple of days earlier or property was taken off the market!!! When you tag a property on the web site, you will be notified via email if a contract was accepted or property was taken off the market. Unfortunately, we will not be able to identify specifically whether a contract was accepted or property was taken off the market but you can call or email the listing agent and get details. You can use your time wisely!!! |
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| Q) As a realtor, how do I write an offer on a foreclosed property? |
| A) As usual, write the contract on the Maryland State contract and county addendum. Include the bank's addendums by downloading the bank's addendums from the website on the MLS printout in the remark section.The bank’s contract addendum could be one page or 20 pages but in summary it just says the seller acquired the property at foreclosure sale. They have no knowledge about the condition and property will be sold “AS IS”. Lastly, the seller’s addendum clearly states that their addendum supersedes over all other addendums in the purchase contract should there be a conflict between the purchase contract and seller’s addendum. |
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| Q) Is the buyer’s earnest money deposit non refundable on the purchase of a foreclosed property? |
| A) It depends on how the contract was negotiated. If the buyer put a home inspection contingency and backs out within that period, the earnest money deposit is refundable. If the buyer backs out after the contingency period, the deposit is non refundable. If the buyer puts a financing contingency in the contract and loan is declined, the deposit is refundable but if the loan is approved and buyer decides to back out of the transaction, the deposit is not refundable. If it is a cash sale and buyer backs out after the home inspection contingency period, the deposit is not refundable. You need to ensure the correct wording in the contract that pertains to return of earnest money deposits. |
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| Q) Can my buyer have a home inspection on a foreclosed property? |
| A) The bank will allow a certain number of days to do a home inspection. Sometimes they will not allow a home inspection period which means that the buyer needs to do their due diligence prior to writing the offer. After your home inspection period, your buyer needs to identify whether they want to proceed or get released from the transaction. Bear in mind these properties are sold in “AS IS” condition and the bank will not repair anything. You may want to assist the buyer with contact information for contractors should they decide to proceed with the transaction and want to repair after closing the sale. |
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| Q) Does the bank have their closing agent to finalize the sale? |
| A) Yes most banks have their own closing agent. You can obtain that information from the listing agent. In some instances, if the buyer uses the seller’s closing agent the seller will pay for the buyer’s title insurance policy. But the buyer has a choice of using their own closing agent and that closing agent can work with the seller’s closing agent to finalize the sale. |
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