Montgomery County Real Estate >> Foreclosures in Montgomery County - Deal or Dud?

(BETHESDA REAL ESTATE) Foreclosures are such a hot topic in the news lately, causing most buyers to believe that they can find a home that's a steal. There a few states where the foreclosure impact is so significant and widespread that there are many opportunities for forward thinking investors to get great deals. But in Montgomery County there are still relatively few foreclosures that are listed in the MLS system.

Of the 5000 active properties in Montgomery County, 320 have words in the remarks of the listing such as "short sale", "bank owned" or "foreclosure." That means fewer than 10% of the listings are some sort of distress sale and most of those are spread out across the county where they have the ability to be absorbed into the active listings without causing too much panic.

But there are certain zip codes which have a greater percentage of distressed sales clustered into neighborhoods creating market problems for sellers but potential investment opportunity for savvy buyers. By the chart below you can see that Gaithersburg (86), Germantown (66) and Silver Spring (102) have the highest numbers of distressed sales and a further breakdown shows 2 zip codes that are the most impacted - 20874 and 20906. Further analysis shows that Germantown Estates and Veirs Mill Village have the most distressed sales in one neighborhood of any of these clustered distress sales.

The result of so many distressed sales in one spot is what's termed a "clouded market" by appraisers. They will typically see a widespread variance between the highest and lowest active prices in an otherwise homogenous neighborhood. Some of the higher end prices have additions or upgrades which the owners are hoping to cash in on for their efforts, but even when those homes are removed there is still a huge arc in price from high to low. At the high end are the sellers, who are clinging to their sales price regardless of the evidence of decline and at the low end the reality of more distressed sale homes lowering their prices to attract any buyer.

In Veirs Mill Village in Silver Spring (20906) there are 27 active listings of which 9 have the distressed sale terms in their remarks. Fully 1/3 of the homes are a distress sale. The active price range is from $279,900 to $385,000 for very similar homes, a very wide arc in price.

Three homes have gone under contract this month:

• a distress sale that started at $349,000 and reduced to $298,000 and was under contract within 23 days.
• Another came on at $359,900 and reduced to $289,990 (seller was very motivated according to the remarks).
• Another came on at $349,000 and was quickly under contract because it was in excellent condition, with an addition and priced in the middle of the active listings.

13 of those current listings are priced above $349,000, which is the highest under contract sale yet. 8 of the 9 distressed sale prices are below this. One distressed sale is above and currently bank owned, with the bank now in the same position as those sellers clinging to their high price expectations.

What does this mean?

• To a current seller first and foremost it means reduce the prices! By a lot. It means getting below the highest sale or pending sale by enough of a margin to be in the game. As more of the foreclosures come on it continues to push price down even for well presented properties because buyers wait to engage out of fear or because they know the prices will go lower and lower. It means constant vigilance on price and condition if you truly want to sell your property. More sales will need to occur to increase confidence back in the neighborhood and prices will have to be in line with the economic needs of that buying community
• To a future seller it means fully understanding how any foreclosures or distressed sales play into the pricing of your property before you bring it on the market. If your agent has this much information on your area,listen to it! If you don't have the same motivation some of the distressed property owners have, it's perhaps a wise choice to rent for the next few years.
• To a buyer it means you better do your homework and understand what this means to your future investment in the property. If you are planning to live in the community understand the market and demographic factors at play. If you are buying as an investment and plan to rent it, will the rents sustain your investment and are there enough renters to cover your costs? A bargain can very quickly turn into a dud unless you've done a complete analysis of the property. You don't want to be the next seller in this cycle just looking to get out the property at any price because the alligator is eating you alive. Make sure your agent knows how to give you this depth of information.
• To an appraiser it means there are not so many arms length transaction from which he can choose comps as he can see this same cluster of distressed sales and will adjust an appraisal for the declining market. Even if those sellers clinging to their high prices could get it from someone, the appraisal contingency would simply either kill that sale or bring the price down to market.

Finally, navigating these distress sales with the bank requires great patience and understanding of the process. To protect your interests as a buyer you need to determine if the seller has in fact begun the process of an approved short sale and you need to deal with experienced agents - on both sides - who can handle the complexity of the transaction and give you the advice necessary to make a good decision. You don't want your "deal" to turn into a "dud!"

Data current as of 11/20/2007. Source MRIS deemed reliable but not guaranteed.

For more information about real estate sales in Bethesda, MD 20816 please email me at josette.skilling@longandfoster.com or visit my website at Bethesda Real Estate.

Josette Skilling
Long & Foster Real Estate, Inc.
4733 Bethesda Avenue
Bethesda, MD 20814
301-385-9213 (cell)
240-497-1700 (office)

Disclaimer: The opinions expressed by The Activerain Network and its members and those providing comments are theirs alone, and do not reflect the opinions of Josette Skilling or Long & Foster Real Estate, Inc. Josette Skilling and Long & Foster Real Estate, Inc. are not responsible for the accuracy nor the content provided by the community.