Snagging a Steal on a Foreclosure Deal
By David Bediz for the Washington Blade
June 2010

In the current real estate market in the Washington, DC area, most buyers approach the home search with a sense of confidence that, as buyers in what is clearly called a “buyer’s market” by most major media, they will have the opportunity to call the shots in any transaction. Most buyers, whether working on their own or with an agent, quickly learn that is not necessarily the case in our area.

It’s true that there are properties that have lingered on the market for literally years, and when representing sellers, agents are quick to prepare them for what can be a lengthy and frustrating listing period. Sellers are now accustomed to accepting less than asking price for their homes and the days of multiple offers and $50,000 escalations seem like a distant memory for most listing agents. However, that is not true for all properties; in fact some entire neighborhoods like Dupont Circle, Georgetown and Chevy Chase are experiencing competitive multiple offer situations on a regular basis, even today. The key, of course, is the price position of each property in the market and the desirability of the property and location in the first place.

It may seem surprising, but buyers seem to be the most competitive in neighborhoods that not long ago were virtually unknown. Mt. Vernon Square, near the convention center, and entire swaths of Shaw, plus the highly anticipated H-Street Corridor are currently hotbeds of market activity, fueled mainly by frenetic foreclosure sales. Columbia Heights has already seen an amazing increase in property values over the years, and Petworth is now following suit at a more modest pace, but with all the same competitive fervor when a well-priced property hits the market.

The properties that seem to attract the most attention, almost regardless of their condition, are houses that have been foreclosed and then listed in the $200,000-350,000 price range. Most buyers recognize that those houses, if situated in an area they foresee to be continuously improving, are worth the risk, time and money involved in their rehabilitation. Developers are feeding the intensity of these competitive bid situations with their own aspirations of a quick-flip profit, and it is not uncommon for a property to garner more than a dozen offers within a few days of being listed.

Buyers David Morris and Justin Burkhardt bid on two properties, both near 8th and S Streets in Shaw before successfully locking in their own home in LeDroit Park. The first home they bid on received eighteen offers in a week, the second got nine offers without even having a kitchen. The couple also toured one house in Columbia Heights that was literally falling over. Listed at $279,000, there were four other groups touring it at the same time as they were, just a day after going on the market. When they considered putting in an offer later that day, they learned that seven other offers had already been received–after just one day on the market–and, unbelievably, all of them were from all-cash buyers.

The home they won was not a foreclosure but was priced very attractively at $385,000. They beat six other offers to snag the deal but had to pay $70,000 over asking and cut appraisal and home inspection contingencies to make it happen; they also had to put in their offer the day after it was listed in order to be considered. “I was utterly frustrated… it seemed we could never move fast enough, offer enough money or cut more contingencies to compete. We were elated when we found out the offer for our house was accepted,” Morris said.

Another couple recently under contract for a short sale property said they learned quickly that the DC is anything but a buyer’s market when it comes to well-priced houses. Christopher Bulka and Andrew Hebbeler had to bid $126,000 over asking price for a two-bedroom home in Mt. Vernon Square, beating out 12 other offers. “Any time a property is listed below market value, it seems like it’s just a strategy to get multiple offers. It becomes a feeding frenzy and you have to bid so much more over asking just to stay in the game.”

Skilled buyers’ agents have a few strategies that are commonly recommended to succeed in a competitive bidding situation:

1. The first is to move quickly. All buyers should subscribe to email-update providers either through their agents (using the Matrix MLS system) or through other reputable MLS access providers that are reporting current and accurate MLS information so they can find out about listings the day they come on the market… and go see them that day if possible. Most agents and buyers agree that, while excellent sources of information for research and neighborhood information, Trulia and Zillow are at the moment not reliable sources of listing information because they do not actually update database information about current listings with MLS information. Getting an email alert about new properties that meet buyer’s search criteria help them to stay on top of new listings and also aids in keeping their agents informed as well.

2. The second tip most buyers should observe is to expect competition. Any property that is a foreclosure is likely to be listed well below its true market value, and putting in an offer less than asking price during the first week of its listing is usually not even worth anyone’s time. Of course, if it has been listed a few weeks or longer without any offers, or if there are inherent irredeemable defects present, or problems with future financing of the property, this may not be the case, so relying on the advice of experienced agents to determine the best strategy in this matter is usually a good idea. Most buyers of foreclosure properties should, however, count on having to offer more than asking price to snag the deal. The property could be a good value, even $50,000-100,000 over asking price.

3. While there are many other intricacies to the bargain-buying process, the last, most important one is to clean up your offer, because often the “cleanest” offer is accepted even if it is not the highest one in dollars. Offering a contract free of financing, appraisal and home inspection contingencies, and with a short settlement period and no other snags like sale-of-home or other additional hurdles, is just as attractive to a bank seller as it would be to a normal one.

To this end, it’s important that buyers understand that they may want to offer to buy the home with their own cash, if possible. While it may still be possible to finance the purchase after the contract is secured, the guarantee of enough cash to cover the purchase if financing falls through is very attractive to a seller, bank or not. Just refer to tip 2, however. Cash buyers look great, but don’t get greedy. Once financing is acquired, your dollars are no better than another buyer’s lender’s money. You may be able to secure the property for slightly less than another financed buyer, but not significantly so.

In general, the foreclosure landscape is proving that DC is actually a healthy real estate market. While it can be frustrating for many buyers who feel they must attack any new listing like a wolf, or who feel they can’t compete without a trust fund or lottery winnings to offer all-cash, it is also helping to turn around neighborhoods that could use a little TLC and also helping some lucky few buyers to acquire entire homes at the cost of a condo in another neighborhood. With a little strategy and a slight change in perspective, that lucky buyer might soon be you.