Out here in the field we are seeing home prices dropping as sellers respond to housing market pressures. Some sellers are still expecting premium sales prices for their homes, but the transitioning real estate market is resisting high prices and causing sellers to re-evaluate their expectations. It’s a whole new ball game and, if you want to play, you need to know the new rules.

Getting an agent to stick your home on the local MLS system and waiting for the offers to come in won’t cut it anymore. Today, traditional sales methods are not enough to sell your home in a reasonable time for a decent price. Home buyers have too many choices and home options to choose from. They are driving the market and your home is only one of many that they are evaluating.

The obvious response to the market, which has been adopted by many sellers, but at a price, is to reduce the price of your home below other comparable houses in your neighborhood. Although many sellers have built in some wiggle room between their asking price and their bottom line, buyers are asking for reductions that will significantly erode the seller’s profit, sometimes to zero. Those who have a need to move quickly, for employment for example, will even take a loss in order to remove the burden of two mortgages or ending up renting. This situation, by the way, offers real estate investors an opportunity to pick up some good bargains.

Even in today’s market, you don’t have to drop the price of your home to the point of taking a loss. There are other ways in which you can add value to your home, even if it is only perceived value, that will enable you to make a good profit and still sell in a reasonably short time.

The use of sales incentives can be a very smart and cost-effective way to add value to your home without sacrificing much of your asking price, if any. Here are some things that can sweeten the pot and make your home a more attractive choice to potential buyers:

1. Offer a 3% commission to the buyer’s agent. Some agents will not show your home for less than that and they will most likely pick your home apart in front of the buyer if they do show it.

2. If you’re in a homeowner’s association, pay the new buyer’s fees for the first year or more.

3. Buy a home warranty, which protects all the appliances in the house including the air conditioning and heating systems. The cost is usually less than $450 for one year.

4. You can pay all or part of the buyer’s closing costs, which can be deducted at closing from your sales proceeds, so you have no out of pocket expense.

5. Pay the buyer’s property taxes for a year or some period. You may already have paid a portion or all of it anyway. Again, no out of pocket expense.

6. If you have oil heat or propane, give the buyer a full tank of fuel.

7. Offer free grass cutting or landscaping for a period of time.

8. Provide all new carpeting or kitchen appliances or leave furnishings that the buyer may want.

9. Offer to pay the buyer’s property insurance for a year or more.

10. Buy down the buyer’s mortgage points by a point or two. This adds significant value to the buyer in terms of dollars saved and it will cost you little.

If you think about it, you can probably come up with more. I have suggested and used these and other methods for distinguishing my clients’ homes in this tough seller’s market. In addition, if you spruce up your home with new paint, especially the front door and kitchen, landscape your yard, clean thoroughly throughout, and stage your home to put it in it’s best light, your home will outshine the others in your neighborhood.

One final suggestion - hire a competent real estate agent. An agent will ensure that you don’t leave money on the table and help you with all the ways in which your home can be the best buy on the block. I can always justify my commissions because I get the home seller more money than he could on his own. A top-performing pro will make you money and not cost you. Just ask the many ‘for sale by owners’ who ended up hiring an agent after an unsuccessful attempt to sell on their own or the ones that ended up getting much less than their asking price. But if you are determined to go it alone, the above tips should help. 
 

You can see it happening all around you. It may have been subtle at first, with some fortunate folks realizing it before others, but it has gained momentum and become a resounding crescendo that is filling the pages of our nation’s newspapers. One cannot hide from the fact that the face of real estate has turned the other cheek and nothing is as it was just a few short months ago. The real estate market has taken a sharp turn and put buyers into the driver’s seat. What goes around, comes around. So, besides its effect on the economy, what does all this mean to you, the seller of a home in this new market?

Out in the field, we had seen the signs early in the year. It was a drastic change over the previous four years, especially last year when multiple offers and above-market sales prices were the norm. Sellers were reaping record profits and homes sold in a matter of days. Realtor® Nirvana.

At first, the number of homes coming up for sale started to increase as March rolled around and it seemed as though real estate transactions were beginning to get back to last year’s levels. Then we began to notice that there were fewer buyers coming to see the homes. That also was somewhat normal since a lot of buyers don’t start looking seriously until Spring as the weather gets nicer. But, as Spring sprung into full view, buyers were still less plentiful than previous years.

As the weeks progressed, we saw that homes were on the market longer and received fewer showings. Home buyers had many choices within their price range and could afford to be very selective and demanding. Multiple offers stopped and home prices started to come down as sellers realized that their home was priced too high for this new market. Everything changed. Unfortunately, not all sellers nor all agents have acknowledged this change and continue to demand unrealistic prices. These are the homes that I drive by week after week and nothing is happening.

If you want to sell your home today, you may have to readjust your sights. Assuming that you have a good agent, ask him or her to perform a detailed comparable market analysis (cma), factoring in today’s drop in appreciation from the 13% or more average of last year to a realistic 5% to7% projected for this year and next. If comparisons are taken from last year, your cma will be skewed if you apply that information to today’s market. It is crucial to derive at the optimum selling price to sell in the market today.

There are some things that you can do as a seller to beat the other comparable homes to a sale. I have used and seen some very creative ways a seller can sweeten the pot to get attention and a sale. There are monetary incentives such as giving money back at closing for the buyer’s closing costs or offering to pay for the remainder of the year’s property taxes (you have probably paid a year in advance anyway, so it is not an out of pocket expense) and non-monetary incentives such as a free home warranty or new carpeting or new appliances. And the list goes on. It seems that any valuable incentive can swing a buyer from someone else’s house to yours.

The best way to sell your home if you are pressed for time, however, is to price it below your competition. Like it or not, it’s very true. I’m out here seeing it every day. The sellers who are smart enough to just undercut the competition with price are getting offers.

For one thing, the lower price will attract a whole different group of buyers who would not even see your home if they didn’t qualify for your higher price. Another thing is that the other homes for sale in the lower price range would make your home look even more attractive because prospective buyers would see that they were getting more home for the same money. And you will mostly likely have fewer issues after the buyer has a home inspection because you have already priced your home low enough that the buyer won’t want to rock the boat. I see this all the time.

Pricing your home to meet market demand does not mean that you have to lose money, though. You may have to shave your profit expectations a bit, but you can still make a decent profit. The key is to know what the right price is so that you don’t leave money on the table. That’s where a good agent comes in. Find a good one and have them do a cma for you and decide on a realistic price. Sometimes you may start a little higher than the market thinks you should, but it will only take a week or two to realize if your price needs to come down a little more. You could also just add a small incentive instead of lowering the price. You do have some options.

Not all the news is discouraging for home sellers. It’s just a matter of an attitude. Too many of you still have the ringing of the cash register in your ears from several years of news about outrageous profits taken by home owners who sold in the boom years. Yes, some made big bucks, but most just sold their homes in a short time for a reasonable profit. But those days are over and profits are still there, but not as big.

So, concentrate on what is a reasonable profit for you without being greedy and accept the market the way it is. It could be much worse. I think that it’s adjusting itself where it should be and everyone in the real estate equation can once again get back to normalcy where everyone profits and not at the expense of others.
 

A Tale Of Two Real Estate Markets
It Is The Best Of Times.  It Is The Worst Of Times

What Is Really Going On In The Housing Market And What Does It All Mean?

The problem with trying to understand what is happening in the real estate market today stems from the many contradicting and confusing reports from our nation’s soothsayers who profess to have the answers. Numbers are thrown around and mish-mashed together so that nothing seems to make sense anymore. Are we getting back to good times in real estate, is the worst over? Or are we headed for darker days?

When you’re out here traveling the neighborhoods, working with home buyers and sellers in and around the Richmond area every day, you can see how the real estate market is moving. There are subtle, yet accurate signs of it’s direction and momentum if you just listen to buyers and sellers. Buyers determine the course of the market.

What’s happening today is very simple. All the people who were looking to buy a home did so over the last three or four years and they are now living the American dream and there just aren’t nearly as many buyers as there were. They all have a house now. Think about it, if there were buyers waiting in the wings, they would be jumping at the still low interest rates and mortgage options that are still available and they would be out buying houses, especially now that home prices are dropping way below previous years.

The cause of the buying spree can be clearly traced to interest rates dropping precipitously about three to four years ago and mortgage lenders offering programs that made it possible for almost everyone to qualify for a loan. And everyone jumped at the chance and the real estate rush was on. People who thought that they could not afford a home suddenly found out that they didn’t need a down payment, good credit score, or even closing costs to buy a home. And buy homes they did, with a frenzy, driving up home prices and enticing home owners to sell, even if the seller didn’t have a compelling reason to, just because they saw the equity in their home skyrocket and they wanted the cash. Many sellers made out like bandits.

This trend, incidentally, has come back to haunt sellers today, especially if they purchased their home in 2004 or 2005 and now have to sell. The double-digit appreciation of home values over the last few years has driven up the cost of a home to the point where a good number of people just cannot afford the high monthly mortgage payments, especially if mortgage insurance is factored in. These are potential home buyers, but the cost of homes is out of reach for them now, even with attractive mortgage options. This has further reduced the home buyer pool. 

By the latter part of last year, all the buyers who could afford it had found homes and the demand for houses dropped like a lead balloon. However, the number of homes on the market continued to grow as new home builders, investors, and sellers were still putting properties on the market, unaware of what was happening. Once property owners realized that the market was slowing, more of them put their homes up for sale to try to cash in before the market worsened. Too late. The buyers were gone. On top of that, foreclosures are at record highs and that has added to the number of properties on the market.

Now you have all these homes for sale all over the place and only a small pool of ready, able, and willing buyers who are taking their time choosing a home and demanding more for their money. So, a disparity in supply and demand exists and that has created a buyer’s market and this trend will continue until the number of homes to the number of buyers comes back into balance.

What we see happening here in the field is the beginning of a reduction in the number of homes for sale as owners who are not forced to sell take their homes off the market, investors are turning to renting instead of selling, fewer homes are coming on the market, and buyers are buying more homes. We are seeing an uptick in buyer activity through more requests for showings and purchase offers, indicating that more buyers are starting to enter the market. With mortgage rates remaining low and apartment leases expiring, the number of buyers should increase at a steady rate as we head into 2007.

All this will result in a normal, healthy real estate market that is driven by people moving due to employment, divorce, retirement, etc. and first time home buyers entering the market. The Richmond real estate market is and will remain healthy. We live in an area with many employers, great weather, friendly people, and a terrific place to do business and that will continue to move people around the area. Prices will once again fall in line with affordability and availability and that is good for everyone. The big question is when will we get back to normal.

For the longer term, I expect the market to remain relatively flat through 2007 and begin to accelerate again by late next year and into 2009 as a new surge of buying activity begins to take hold based on a number of factors that are starting to take root now. More on that in future articles.

If you are a seller, you don’t have to drop the price of your home if your agent has done his or her homework and it is priced in line with the comparable homes in the area. You just need patience because it is just going to take longer to sell your home. Period. Unless you undercut your competition’s price and offer more value, it is going to take months instead of the weeks or days, which was the norm the last few years.

To sell your home in today’s market, you merely need to price it right and spruce it up to look and smell pretty and then allow reasonable time for the buyers to come. It’s not a matter of what you think your house is worth. The buyers out there will tell you what it’s worth because they are comparing homes inside and out and they are only paying for what they want, not necessarily for what you have. Remember, buyers still have only two criteria that determine if they will even come to look at your house - location and price. Like it or not, your stainless steel kitchen appliances and brass deck screws don’t make a difference to people if another house is priced less or is in a more attractive location.

If you are thinking of buying a home, there is no better time than now. As I mentioned, there are plenty of fine homes on the market and competition is driving prices down and sellers are making concessions that make home buying a smart move right now. Even investment property may be an option as more foreclosures and desperate sellers hit the market.

It is the best of times if you are a home buyer. It is the worst of times if you are forced to sell. Basically, I guess, a lot has to do with one's attitude about the whole thing. From my perspective down here in the trenches, home buyers and sellers generally experience a reflection of their attitudes towards buying and selling a home. Those who expect the best generally get it and those who expect the worst generally get that as well.

So what are these conditions that can cause exuberance to be displaced by depression? Out here in the trenches, we are constantly reminded of the little real estate devils that lurk to spring on the unsuspecting home buyer or seller. Many times it cannot be avoided and you just have to brace yourself for the impact and move on. However, by knowing the things that can blind side you, you can take steps to minimize the possibility that they will occur and plan for the worst.

The most common issue and usually the first to crop up is the home inspection. The buyer is allowed a home inspection before the sale is consummated to determine the integrity of the home. If major defects are found or there are a number of problems that were not evident when the purchase offer was submitted, the buyers can get out of the contract and get their good faith deposit back if the seller is not willing to agree to the repairs requested by the buyers. If buyer and seller cannot agree on the repairs to be made, the contract can be cancelled by either one. Normally they agree, but not always.

If there is a home owner’s association, known as an HOA, the buyer is entitled to receive a current copy of the association’s covenants, restrictions, and conditions covering what the homeowners in that association can and cannot do with their property. Usually things like fence height and appearance. Once the buyers receive the HOA packet, they have a specified time, usually three days to six days depending upon the delivery method, to accept the terms of the association or they can reject those terms. If the buyers elect to reject the terms of the HOA packet, they can get out of the contract without penalty. In fact, the buyers do not have to give a reason for rejecting the association covenants. Merely stating that they cannot abide by the conditions, the buyers can use the HOA to walk away from the sale if they so choose. Yes, I’ve had this happen to me more than once.

Once the home inspection is satisfied and the HOA terms have been accepted, the buyers’ mortgage lender will hire an appraiser (which the buyer pays for) to determine the purchased home’s value. If the appraised value of the house comes in below what the buyer has agreed to pay for it, the lender will not loan the buyer the purchase price amount. A lender will only offer a mortgage amount equal to the appraised price of a home.

For instance, if a house was sold for $100K, but the appraisal came in at $95K, the lender would only give a mortgage for $95K. The buyer and seller then have three choices: the seller can drop his price to $95K or the buyer can put in the $5K to pay the full sales price or both parties can walk away.

Another common deal breaker is financing. Just because a buyer has a pre-approval lender for a certain amount from a reputable mortgage lender does not mean that he will actually get the money. Mortgage companies issue pre-approval letters usually based upon a credit score only. However, when it comes time to actually give the money to the buyers, the lender’s underwriter digs deeply into the buyers’ credit history and employment data. Too often, problems are discovered at this stage which can cause a mortgage application to be denied at the last minute. If a buyer cannot come up with the necessary financing to buy your home, he can default without penalty and you, the seller, are stuck with any ramifications.

Out here in the field I had a recent experience with my seller client that caused a lot of problems for a lot of people in that regard. Two weeks before closing, I got word that the buyers’ financing had fallen through, even though I had a pre-approval mortgage letter from a well-known and reputable bank. You can’t imagine all the people that had worked to gather all that was necessary for the closing to have it all fall apart in the eleventh hour. Worst was that my dear seller client had made plans because of the expected sale. It was a sad tale and one that we eventually turned around. This business can be gut-wrenching.

These are the major areas in which a contract can be voided without penalty to either party. There are many other situations that can occur in a real estate transaction that can affect the outcome of any sale or agreement. It is always prudent to seek the advice and services of legal real estate professionals whenever a contract may be threatened.

Keeping these things in mind when planning your home sale or purchase can make the difference between a smooth real estate transaction and a rough one.

Here’s Why . . . And What You Can Do
About It If You Need To Sell Your Home

No, it’s not your real estate agent’s fault that your home hasn’t sold yet, at least not because of most agents. There are forces greater than the marketing and sales blunders of inept agents that are causing homes to linger on the market much longer than we have seen in a long, long time.

If it makes you feel any better, it’s not just your home that hasn’t sold. You have a lot of company out there. And that, by the way, is just one reason for this mess you are in if you are a home seller. As homes stay on the market longer, new homes coming up for sale increase the total number of homes already available because not as many homes are selling as buyers are buying. Can you see where this is going?

So, you may ask, why is all this happening? What happened to the rosy predictions of just a few months ago by our revered soothsayers about a come-back of the housing market after last year’s precipitous decline in housing values and sales?

Great questions. There’s one simple answer – fewer buyers. That’s all. There aren’t as many buyers as there were in previous years, but the rate of homes coming on the market continues to edge up (although we are seeing a slight scaling back now). Normally a market like this, however, does correct itself over time as it goes through cycles and the real estate gurus figured on increasing numbers of buyers entering the market as summer approached. It hasn’t happened yet.

There is one other thing that the market prognosticators didn’t figure on, something that looms menacingly on the horizon, something that is imminent and approaching, something that has yet to hit us with full force – the subprime lending fiasco that you have undoubtedly heard about. This is the fly in the ointment that will spoil a correction in the real estate market in the short term, at least, and exacerbate the home seller’s problems.

Because of "creative" lending practices by our nation’s mortgage brokers and other lending institutions and, in some cases, down right fraud, millions of Americans are facing the threat of foreclosure on their homes and filings have already surpassed previous levels. This trend can be tracked by the record number of home owners who are behind in their mortgage payments. As they get further behind each month, foreclosure often ensues.

The root of the problem is that lenders and borrowers planned on refinancing these fancy loans, which have low monthly payments, before the time came for the mortgage to adjust to higher monthly payments as in the case of adjustable rate mortgages. A large number of these mortgages are due to adjust this year through next and a scramble to refinance is gaining momentum. Normally, this is all well and good. Refinancing allowed people to keep their monthly mortgage payment at a manageable amount and life went happily on.

Now is where it gets interesting and a bit scary. Subprime mortgage lenders, those who lend to people with shaky credit and questionable income, were a bit overly aggressive in the numbers and amount of the mortgage they issued to people whose credit was not always verified and, as it turns out, not qualified to receive the amount offered. As a result, these people purchased homes above their means and began to crumble, after just a few years, from the burden of mortgage payments that they could no longer support and should not have received in the first place.

The next thing you know, these people get behind in their mortgage payments, then the bank forecloses on the property and puts it up for sale, and you have another home on the market that would not have been for sale under normal circumstances. This is happening more and more now as the whole subprime dilemma begins to unfold. This is what you are hearing and reading about.

You’d think that was bad enough and we should all be biting our fingernails, but nooo. To make matters worse, several major subprime lenders have sought bankruptcy protection or were taken over, the federal government has gotten involved (boy, is that a monkey wrench in the works), the major housing lenders have tightened lending parameters, and banks are requiring more documentation and financial substantiation.

This means that many of the people who had counted on refinancing this year or next cannot now get mortgages because their current credit situation no longer qualifies them with the more stringent guidelines set by the lenders. These are all potential foreclosures for home owners and it locks out a certain group of home buyers who don’t qualify.

How all this will pan out is anyone’s guess and some parts of the country will be affected less than others and the overall impact may not be catastrophic down here in the neighborhoods. We do see, however, longer days on market, a small buyer pool, and a slight increase in the number of foreclosures and there is reason for concern and we are watching the signs. The tip of the iceberg is in view. We don’t know what lies underneath. We’ll find out soon.

What can you do to sell your house in this capricious market? You won’t like it, but take it from me here in the trenches, if you want to sell your house you have to lower your price until you get an offer. It’s called "the market". It’s not called "It’s my house and I can sell it for whatever I want".

Buyers will only pay for what they want and not what you happen to have that you think adds value to your property. You can’t charge more for your home because you did something that you thought added value. If it is of no value to the buyer, neither is the price of your home when he or she can buy a similar house for less and they have an almost unlimited supply to choose from. It all depends upon how long you can hang on. One thing is clear, people are buying on price now. Your tray ceilings and stainless steel appliances can’t compete with a house that has a better price, but without these and similar features.

The real estate market waters are choppy for home sellers and the brewing dark clouds of the impending subprime storm are beginning to whip up the whitecaps. We will have to wait and see how big this storm will get. I think that I will need to get new rain gear.

There is good news – for home buyers, at least the ones with a good credit score. Not so good for buyers with a mediocre score. They are part of the shrinking buyer pool affected by the more stringent lending rules.

Since nothing is certain, however, all this speculation on the effects of the subprime woes may result in just a minor hiccup in the whole scheme of things. Let’s hope so. But I’m keeping my rain coat handy.  

With the real estate market in Richmond, VA being the way it was at the time, it only took a few visits to prospective homes to find one that was nearly perfect for them (there is no such thing as the perfect house, by the way). After a bit of negotiating, we had a contract and the process of moving towards real estate closing began.

All was going well until about three days before the scheduled closing when I heard from my clients that their mortgage broker told them that there was a problem with their loan approval process. The lender was missing some documentation and could not provide the funds needed at closing to buy the house until this was cleared up. Closing delay number one.

My clients cleared up the issues and a new closing date was set for two days later. A day before this closing date, my clients received another email from the lender stating that there was yet another problem and closing would be delayed again for another three days. Closing delay number two.

When we inquired for clarification, we could not get a hold of the mortgage broker and he did not return phone calls for days. Meanwhile, no one knew what was going on and the closing was put on hold until we could talk with my clients’ lender who seemed to have disappeared. Closing delay number three.

We finally found out that the mortgage broker had left for vacation and would not be back for about a week and there was nothing anyone could do until he returned. Well, we didn’t wait and eventually got to talk with the manager, who kept dodging us as well and we were getting no closer to closing. Boy, was this a mess as you can well imagine. My clients were living in a motel with furniture in storage and the owners had moved and still paying on their old mortgage.

This kept going on and on. We were told that we would close "tomorrow" and when tomorrow came, we would close the next "tomorrow". It was not until my clients had gone to another mortgage lender, this time a bona fide banking institution instead of a broker, that their existing mortgage broker finally said that they now had everything they needed and we could close "tomorrow".

Well, this time it really happened, but it was almost six weeks from when the closing was originally scheduled! Can you imagine? It all made me cringe and boil with anger for what my clients had to go through and my hands were tied. Mortgage brokers do not have to be licensed and can get away with a lot of shenanigans.

An uncommon real estate occurrence? Unfortunately, it is not. I am sure that almost every Realtor® you talk to will share a similar experience. You would be appalled at the number of times that mortgage approvals fall through at the last minute and derail a real estate transaction, leaving both buyers and sellers in a lurch, not to mention all the other people involved like settlement attorneys and staff.

The saddest thing about it all is that there is very little one can do about the tactics that mortgage brokers use to convince home buyers that they will have the money that they need, even if they are unsure whether that will actually happen in time for closing.

Why does this happen? Very simple - mortgage brokers will shop your loan to a number of lenders until they find the best deal, usually for them, and they do this a short time before the closing date. Once they find a lender, the company that is actually putting out the money for the house, the lender performs an in-depth credit search on the buyers.

This is called underwriting and it is one of the last steps for loan approval. If there is anything missing or not up to the lender’s requirements with the buyer’s credit audit, the lender will not give the money and the mortgage broker now has to shop around some more to find a lender who will give the money, which then delays the closing. Sometimes they find one, but valuable time is lost, and sometimes they don’t find one and tell their clients that they don’t qualify for a loan.

When delays occur, what you will hear from the mortgage broker is that the underwriter needs this or that in order to complete the application. What the broker isn’t telling you is that it is a different underwriter each time the broker shops your loan and that’s why more documentation is needed because something is always missing it seems whenever the broker finds another underwriter and the closing date keeps moving out.

Just getting a pre-approval letter from a mortgage lender or broker does not guarantee that you will actually get the money for your new house. It only means that your credit score has been checked and that you fall within a certain range of pre-approval, but until underwriting, nothing is certain. What does help to ensure that you will receive the money when needed is a mortgage commitment. This basically says that the lender has checked enough in order to determine that you are eligible to receive the loan and will get it. However, many lenders will not offer one until all information is checked and approved and the buyer has found a house.

It is prudent for the home buyer to talk with several mortgage lenders including brokers and traditional lenders like banks who actually provide the money. This way, you can be assured of what your options are and the differences between each one. You can then determine which loan package and lender is right for you. You have something to compare and also fall back on if something goes awry.

It is also very important for the home buyer to be truthful with the information provided to the lender. If anything is held back or covered up, it will only come up later and that puts the closing in jeopardy.

So, remember that your mortgage is only guaranteed to the extent to which your lender goes to qualify you. There is much involved to get to the point of commitment and lenders don’t like to go through the entire underwriting process until the milestones of the closing process are reached, such as the home inspection and appraisal.

Shop around! You are buying money, lots of it. You are the customer and you have choices. To the lender, money is a product that they want to sell to you. They can’t make money when it is just lying around in their bank. Without you, they have no business, so get the best deal that you can. Let your lender know that they have competition. Only then will you be able to figure out what your best option is. Ask questions until you fully understand. 

Once the realm of only seasoned real estate investors, the interest in purchasing foreclosed properties has fanned out to a growing number of ordinary home buyers. As the sub-prime lending fiasco continues to push homes into foreclosure and news stories appear everywhere about the record number of them hitting the market, many prospective home buyers are eyeing these properties as a way to get a lot of house for little money.

There seems to be a big misunderstanding by the public, however, about the value of homes that have been foreclosed. People tend to think that a foreclosed home presents a bargain, especially those who are looking for real estate investment property. They think that they can buy a foreclosure cheap, do a little fixing up, and sell it for a hefty profit or rent it out or even keep it for their own home, expecting to reap instant equity. Well, it doesn’t work out that way very often.

Out here in the trenches of real estate, I have been seeing an increase in foreclosed homes dumped on the market and the number of people looking for such homes who are expecting to purchase one for pennies on the dollar. I have home buyer clients who specifically want to evaluate only foreclosures or HUD homes, those offered by the government, usually by a bidding process, because they want a house that they can buy cheaply and work on it while living in it. As it turns out, most end up buying a conventional home once I show them a couple foreclosures and they begin to understand what they are up against.

Banks are not stupid. They know the value of real property and are not about to give it away. It’s an asset to them, not a liability. When they have to sell a home that they have repossessed, they offer it at market value, not necessarily for what is owed on the house. The first thing they do is send a certified real estate appraiser to the property to determine a fair market price based on comparable homes sold in the area and any defects that may be present in the home. Whatever figure the appraiser comes up with is what the house will be priced at. And it isn’t cheap.

It is true that many foreclosures are priced lower than seemingly comparable homes in a given area, but they are almost always in very poor condition, sometimes requiring extensive repairs. And this is where the danger comes in. Foreclosed properties are sold "as is", meaning that when you buy the house, you have to take it in it’s present condition, the way you see it. You can have a home inspection, but you can’t ask the bank to make any repairs to defects found or credit any money back for such repairs. Once you have a contract, you can’t get out of it because you discovered a major defect and the bank refuses to correct it.

If you do your homework, however, and are smart about the whole thing, there are bargains to be found from time to time. Since you never know what a property’s true condition is by a cursory inspection, it makes sense to hire a home inspector before you submit a purchase offer. That way you will know what repairs need to be made and you can then find out the cost to make repairs and easily determine if the asking price of the house is worth the repair expense. A lot depends upon if you are going to live in the house yourself or if you are going to flip it or rent it. A foreclosure is much more risky if it is purchased for investment purposes than to live in.

The more thoroughly the house is inspected and the neighborhood and market researched, the easier it is to make a decision on whether a particular foreclosed home is right for you. Remember, when a house has been vacant for a long time without regular maintenance, which is often the case, even a home inspector can miss damage that is not apparent, but may be lurking behind walls and floors. Leaking water, vermin activity, and rot can occur in areas not visible to even the most thorough inspection without tearing out walls. These latent defects can manifest themselves at anytime and cause extensive damage. Consider also that many foreclosed homes were neglected by the previous owners, adding to the possibility of unforeseen problems. I see this out here in the field all the time.

If you are determined to buy a foreclosed or HUD home, do your homework. Work with a competent real estate agent and know the real estate market, the condition of the property, and the cost to make repairs. No matter what your objectives for buying a foreclosure are, get the facts. That bargain property could turn into your worst nightmare. The old adage of "Buyer Beware" certainly holds true when it comes to buying foreclosed property. I could tell you horror stories.

There are going to be more foreclosed homes coming on the market over ensuing months and there will be some excellent pickings if you know how to spot and properly evaluate them. Move fast when you do find one. You’re not the only one eyeing that property.

               What horrors await home sellers in the dungeons of the housing slump?

News headlines bombard us daily about the plight of the real estate market and it’s wide reaching effects on the economy. You’ve read the stories of record numbers of foreclosures, the sub-prime mortgage fiasco, and declining home prices and sales. There is even talk of a recession.

What we all need to remember, however, is that most news reports that you read are based on national housing information. As you may know, real estate is local and not every area of the country experiences what is presented by governments, associations, and media. Although it is true that the housing market is in trouble just about everywhere in the country, the severity of conditions vary by area.

Out here in the trenches of Richmond va real estate and surrounding counties, which can be considered typical of many areas, we have seen home prices fall and properties are lingering on the market for months and months. Yes, things are not good for home sellers here, but we are not facing armageddon, either. Houses are still selling and home buyers are still buying homes. It is just taking longer to sell homes and the profits made on home sales have come down, but that is because the prices of houses where highly inflated just two years ago.

We’re starting on the path of a corrected market. This is the case in many metropolitan areas such as Richmond. But, before we will get back to a normal real estate market, the momentum of the housing pendulum will cause the market to swing towards the other extreme from what we saw two years ago and put a deeper gash in the housing market before it swings back to equilibrium. The question remains - how deep will the pendulum’s arc slice into the heart of real estate and how fast will it swing?

Things could get worse for both home sellers and home buyers before they get better from what I am seeing out here in the neighborhoods and tracking the market. Sellers are facing even longer selling times because of additional foreclosures hitting the market and job relocations. Home buyers are having a harder time qualifying for mortgages because of the sub-prime loan problems. It’s a mess, no doubt, and we cannot really be sure how painful it all can get for those having to sell or buy a home.

You can probably make as good a prognosis of your local conditions as any of the real estate pundits, maybe even better, from just knowing a few stark realities. In order to survive the cuts from the pendulum, sellers need to be realistic with their profit expectations. Your opinion on what your house is worth is inconsequential. You will have to accept what buyers offer or not sell. Home buyers are the market, not sellers. And right now, buyers have the upper hand. They have more choices than ever.

And this brings us to the root of today’s housing market woes. For sellers, the pressure from more homes coming on the market, exacerbated by the sub-prime complexities, will force them to lower prices if they have no choice but to sell. Home sellers will also have to wait even longer for their home to sell. I have seen sellers who just break even on the sale of their homes and some make very little profit, depending on how long they have owned their home. There are way fewer home buyers these days.

For home buyers it may seem that this is their heyday and super bargains are in the offing. To some perhaps, but to many, the mortgage pendulum is severing their ability to qualify for a mortgage that would have been readily available to them prior to current day, preventing them from buying a house or qualifying for refinancing.Although the Fed has made a big cut in interest rates and President Bush has approved the bailout of certain foreclosure situations, there is still one part of the equation that is keeping the housing market from stabilizing - tighter mortgage criteria by spooked lenders is preventing many ready and willing buyers from qualifying for home financing.

As often happens when a crisis appears, those in control tend to overreact and enact regulations that send the pendulum swinging to the end of it’s opposite arc before settling somewhere in the middle as natural forces slow it down.  Because several large sub-prime mortgage lenders filed for bankruptcy and the number of foreclosures is climbing, most, if not all, mortgage lenders have tightened up on their lending practices to the point where many buyers can no longer qualify for a mortgage who normally would have. And I don’t mean the high-risk borrowers that are now defaulting on their mortgages.

Before the real estate market gets any better, the mortgage pendulum needs to swing back down without creating a deeper gash in the availability of financing for more home buyers. Until banks and other lenders relax their criteria, the actions of the Fed and the White House will not have a significant enough of an impact to turn the housing market around. If the rate of the number of houses offered for sale continues to grow and the pool of able home buyers does not keep pace, conditions in the dungeon will only get worse as the pendulum comes ever closer with each swing.

Are conditions surrounding the real estate market as bad as we are hearing and reading in the media? Is the mortgage market in as terrible shape as financial pundits claim? In a word, yea . . . and, nay. It all dependeth upon where thou liveth and if thou haveth been a good citizen and paid all thine debts on time.

Yes, the real estate market and the mortgage industry have undergone significant changes over what we have come to know and experience in recent memory and there is no doubt that home prices are falling, foreclosures are up, and money is harder or impossible to get for many folks. Home sellers are making less off of the sale of their homes and home buyers are finding it harder to qualify for a mortgage that they normally would have just a year ago.

But there is also another side to the dismal real estate figures with which we are daily bombarded. Not all areas of the country are experiencing the housing slump that the numbers seem to indicate. So, no, for some people, the housing market is treating them just fine and both home buyers and home sellers are profiting, but not at the expense of each other, something that wasn’t always true back in the day. Home prices are stable or climbing and buyers are buying. And, the areas that are hit the hardest with foreclosures are those areas in which the bulk of subprime loans were made, Detroit, for instance, but not as pervasive as one would assume from the media.

The housing statistics that we read and hear about are national figures that are based on averages and other such formulations from governments, real estate associations, and other polling groups that fail to take smaller regions into consideration. It’s the same with mortgage figures. The numbers are based on a large pool of national data.

Also, the figures that are thrown around can send the wrong message when not clearly explained to those who are not financial wizards. For instance, we hear that 25% of subprime mortgages are not performing. But, only 25% of all mortgages are subprime, which means that three-quarters of the subprime mortgages are performing. And that all means that only 6.25% of all mortgages are not performing. Not a great thing, but a lot less scary than 25%. It puts a whole new perspective on the overall impact of that number on the housing market.

The areas in which the housing downturn has hit the hardest, such as Southern California, Nevada, Arizona, and Florida, also had the greatest growing spurts in previous years. The markets there are merely settling into equilibrium, which benefits everyone involved in the housing market. Home prices have been coming down because they escalated too high. Fewer buyers are in the market because most found homes during the boom. Once the over building of new homes scales down, the real estate market will be adjusted to normal. And, hopefully, the economy will follow suit.

When you look at areas like Salt Lake City, UT, Beaumont, TX, and Ashville and Charlotte, NC, you see real estate as being very healthy. Another spot, Richmond, VA, is also a good example of a housing market that bucks national figures. Richmond, VA real estate is healthy as the other metropolitan areas mentioned. It’s not like it was just two years ago, but there is no housing crisis. Things have just changed. We all adapt sooner or later. Just think gasoline prices.

So, when you read those figures spewed out by prognosticating pundits of real estate, keep in mind where you live and how good your credit is. If you’re selling in a good area for a decent price, you will make money and sell within a reasonable amount of time. If you are in a tough market area, you may need to stick it out or take less profit.

If you are in the market to buy a home, you will make out fine with the still low interest rates as long as you have good credit. Homes are plentiful for reasonable and even bargain prices. If your credit is not so hot, say less than 700 (it used to be 500), you may have a hard time finding a good deal or even getting approved for a mortgage. You will probably also have to come up with a good-sized down payment.

Ye can protesteth to thine heart’s content, yet thine words shall fall upon deaf ears. The real estate market progresseth as it shall and we are all but pawns in the hands of the real estate gods.