Whether it's the first time or the tenth, buying a home can be both an exhilarating and overwhelming experience. As with any major purchase, there's a significant amount of pressure to make the right decisions about such matters as where and what to buy, and ultimately how much to spend. How can you make sure you get the best deal possible on a property that suits your needs, or find exactly the right property to fit your budget and your lifestyle? Increasingly, many homebuyers are doing this by secure the representation of a Buyer's Agent.

Most people hire a real estate agent to sell their home, but overlook the importance of having an agent when buying a property. While in some cases it's possible to negotiate your purchase through the seller's representative, make no mistake: these seller's representatives are charged with making the sale and negotiating the best deal for their clients — the sellers! With that in mind, it's best to secure your own representation as a buyer, in order to minimize potential conflicts, and make sure your interests are represented.

In the more complex foreclosures market, a Buyer's Agent can be even more valuable. The agent can help you negotiate with the owner before a property comes on the market and can also act as a buffer during the negotiating process to make sure you've completed all the necessary steps before closing. Done right, it's like having your own personal tour guide to help you find your way through the foreclosure buying process.

For buyers looking to uncover substantial bargains in real estate, the foreclosures market does offer a treasure trove of opportunities. Foreclosure properties are some of the best opportunities in real estate today with savings of 10-30 percent below market value. Some properties offer savings of up to 50 percent or more! But like any investment offering a high return, there are sometimes higher risks involved in buying a foreclosure than in buying more traditional real estate. One of the ways to maximize the value while minimizing the risk is to work with Buyers Agents who specialize in this market, with specific experience navigating the twists and turns that come with purchasing a foreclosure.

"If you're in the market for a foreclosure property, you should really take some time to look for an agent with actual foreclosure transaction experience," explains James J. Saccacio, chief executive officer at RealtyTrac, the leading online foreclosure marketplace. "The nuances of this market make it a different animal from conventional real estate, so buyers owe it to themselves to secure a seasoned agent who's familiar with the foreclosures process, and has knowledge of local, regional and state laws."

RealtyTrac's National Agent Network connects prospective buyers of foreclosure properties with local agents who specialize in foreclosures. Homebuyers can go to www.realtytrac.com to identify and research potential home purchases, as well as to find all the tools and professional resources they need to help them close the deal.

Of course, it's also important to consider the agent's knowledge of the area where you wish to purchase property, their ability to close a deal, and their access to other professionals such as attorneys, lenders, and title companies. It's often a good idea to interview two or three agents to ask about their credentials and to test out chemistry, just as you would when selecting any valued business partner. Ask for references from previous buyers to see what people who have been in your shoes have to say about the agent's credentials and demeanor. Ultimately, your agent should make you feel confident that they know how to steer you correctly through the foreclosure buying process.

Here are some questions to ask a prospective buyer's agent if you're buying a foreclosure:

• Are you a licensed, full-time an agent?
• Are most of your clientele buyers or sellers?
• How long have you worked with foreclosure real estate?
• How many clients are you working with presently?
• Do you have former clients I can contact as references?
• How will you help me contact owners in default?
• Are you familiar with the foreclosure laws in this area?
• How much commission will I pay as a buyer?

Once you've selected an agent, you'll need to set up some ground rules for how you want to work together, such as times you are available to view homes, expectations regarding the agent previewing properties on your behalf, and courtesies expected by both parties.

Keep in mind that even the most intuitive agents are not mind readers. You need to make your preferences, priorities and spending limits clear up front, so neither party wastes valuable time looking at properties that don't meet your needs.

Finally a word about etiquette: While you don't necessarily have to commit to working exclusively with a single agent (unless you've signed an exclusive agreement with them), it's most proper to ultimately extend your loyalty to an agent who spends a significant amount of effort helping you find a property. Remember, real estate agents work on commission, so the time they spend working on your behalf amounts to nothing if you don't ultimately make a purchase through them. If for some reason, you find that your needs are not being met by a particular agent, it's best to set the record straight early in the process, either to correct the problem or to retain alternate representation.

Working with a Buyers Agent can often result in a net savings on property purchases—whether traditional resale homes or foreclosure properties, and can also help inexperienced home buyers from making costly mistakes in negotiations, contract terms and property research.

Most owners who lose their homes in a foreclosure never thought it would happen to them. It always happens to someone else — you know — the people who get sick, laid off, have an accident, that sort of thing.

So you might think: Foreclosure. That will never happen to me. No way. But lurking in millions of mailboxes each month is a financial time bomb, a threat to homeownership never before seen in this country.

For the past few years the nation has been flooded with forms of financing which allow buyers to purchase homes that were once unaffordable. The essential deal is this: You buy now, pay less than you should each month and then within five years sell at a big profit or refinance.

Truth is, it's been a great ride. Many people have followed the formula and made a ton of money. But like musical chairs, you just know that a bunch of people will be caught in the wrong place at the wrong time.

In a growing number of metropolitan areas, the wrong time is now. Just look at what's happened to home prices during the past five years:

                               Metropolitan Area Home Price Trends

Source: National Association of Realtors

"The meaning of this chart is plain," says James J. Saccacio, chief executive officer of RealtyTrac, the leading online marketplace for foreclosure properties. "In the summer of 2003, when mortgage interest rates reached bottom at 5.21 percent, no metropolitan area saw a price decline in the second quarter. The market was at its top in 2005 when almost 45 percent of all metro areas saw double-digit price increases. In 2006 the marketplace radically changed. Now we have the greatest percentage of second-quarter price declines in the past few years, virtually double any comparable period."

Okay, so why are falling metropolitan prices a problem? If you're not selling and you're not refinancing, who cares?

Falling prices are not a problem for those with fixed-rate loans. But for millions of borrowers with the latest forms of low-ball financing, falling prices can be financially lethal.

Imagine that you bought a property a few years ago. Since values were going up it made sense to buy the biggest home you could afford and to buy that big house you got a $400,000 interest-only loan at 5.6 percent, a mortgage amount that covered 100 percent of the purchase price.

For the first five years the loan was wonderful: Monthly payments were $1,867 plus taxes and insurance. But after five years, the loan automatically converted to a one-year ARM. The one-year LIBOR rate that was originally at 3.60 percent five years ago reached 5.45 percent this August. Combine the LIBOR index rate with a 2.0 percent "margin" and your loan rate jumped to 7.45 percent.

After five years not only does the rate go up, the mortgage bill now includes the expense of monthly principal payments to reduce the loan balance. The monthly cost for principal and interest? It's now $2,943. Taxes and insurance are again extra.

“Those low-payment loans that looked so good a few years ago are going into their second phase,” says Saccacio. “Each day more and more borrowers are finding that the low 'start' payment is gone and that steeper, fully-amortizing payments have now kicked in. At the same time, homes that were once easy to sell are now harder to market. It's a brutal combination and what we're seeing in the Fall of 2006 is likely to get worse.”

The instant solution to high monthly costs is to sell the property. During the past five years many areas have seen huge price increases. The odds are good in most markets that a seller with several years of ownership at this can readily sell, often with a significant profit.

But as the market evolves the odds may become less attractive. Not all markets have seen double-digit growth. In such areas price stagnation or actual declines can lead to huge inventory increases. To sell in down markets homes owners will be forced to offer not only price discounts but other incentives such as "seller contributions" to help buyers at closing, new carpets, new kitchens, moving allowances, etc.

But selling also may not be an option. Not only can a sale in a down market produce a bankrupting loss, but losses on the sale of a personal residence are not tax deductible.

What can you do to avoid being a foreclosure statistic, to not get caught in the impossible position of loan costs that are too high and market values that are too low?

"Act now," says RealtyTrac's Saccacio. "Don't wait for the hammer to fall. If you see a mortgage problem looming in the next year or so, refinance to a long-term, fixed-rate loan before your credit report shows any late or missed payments. Take a careful look at traditional loans with liberal qualification standards such as FHA or VA financing. Speak with your lender about a loan modification and see if your adjustable-rate mortgage has a conversion feature, a right to switch to a fixed-rate within the first few years of the loan term. Because a conversion is a loan modification and not new financing, conversion can be quick and cheap."

If you find a situation where the property cannot be reasonably refinanced, if unaffordable monthly costs are certain, then it makes sense to sell now and move to a less-expensive home with reduced debt, lower monthly costs and fixed-rate financing. Moving is a way to avoid foreclosure and dodge bankruptcy — two events no property owner should experience.

_____________________

Peter G. Miller is the author of The Common-Sense Mortgage and is syndicated in more than 90 newspapers

Before You Buy a Foreclosure Property, Do Your Homework!
Online tools allow you to evaluate potential purchases from the comfort of your home
By Rick Sharga, Vice President of Marketing for RealtyTrac

There are two words that give pause to the most motivated real estate buyer or investor, especially during the busy holiday season: property research.

In the past, property research equated to extensive legwork — often involving a trek down to the local recorder’s office — and expense that was spent evaluating a property’s market value and all the debt encumbering the property. But now a few clicks of the mouse on RealtyTrac will get you that same information for properties nationwide:

• Comparable Sales: provides up to 15 recently sold properties in the neighborhood so you can pinpoint the property’s true market value.
• Lien & Loan History: provides a list of all liens and loans (mortgages and trust deeds) against the property so you can calculate the total debt encumbering the property.

These reports are available for hundreds of thousands of properties found on RealtyTrac, the nation’s most comprehensive and convenient online marketplace for homebuyers, investors and real estate professionals, with more than 550,000 properties updated daily. You can also order individual property reports for any property nationwide.

Thorough research has always been crucial to determining a property’s investment potential. But the tools and resources needed to do that research are much more accessible now than ever before.

“When buying a property, the right examination and due diligence on the part of buyers can significantly improve their ability to make a strong investment,” explains James J. Saccacio, chief executive officer at RealtyTrac, which also maintains the nation’s largest database of pre-foreclosure, auction and bank-owned properties.  

RealtyTrac can help investors and homebuyers tap into the previously hidden foreclosure market by providing access to property data formerly available only to professional real estate brokers and investors. Today, homebuyers can use these services to identify and research potential home purchases, as well as to find the tools and professional resources they need to help them close the deal.

It makes sense to give any property under consideration — foreclosure or otherwise —an in-depth examination. First, check the Lien & Loan History for all debts secured by the property. Subtract the total amount owed from the estimated market value, based on the Comparable Sales, to determine the potential bargain. After making contact with the owner or real estate agent, arrange a walk-through of the property to evaluate its condition. Factor estimated repair costs into your purchase offer. Before you close the deal, hire a professional home inspector to inspect the property and enlist a title company to run a final title check.

If you purchase a property at a public foreclosure auction, you won’t have a chance to inspect a property before buying, which makes this type of purchase more risky. But if you’ve researched the title and determined the amount owed is far less than the market value, you’ll have some margin to cover unexpected repair costs. Before you go to the auction, set a maximum bid based on your research and stick to that bid at the auction.

Although you’ll be able to inspect the property if it’s bank-owned, the bank typically knows little about the property and will sell it in “as is” condition. This means the bank will disclose all the needed repairs it knows about, but is not held responsible after the sale for any repairs it did not know about. Factor the known repairs into your purchase offer and have a professional inspection conducted before closing the deal. You should also have a title company run a final title check before closing, although most banks will make sure the title is clear before selling.

No matter what type of property you’re planning to buy, good property research will help you recognize which properties represent smart investments and which do not. And that research is now much more convenient thanks to the extensive property research tools available online through RealtyTrac. Remember, a little preparation before the sale can help you reap huge benefits. So, it’s worth your time and energy to do a little homework!

One of the most overlooked and underestimated expenses involved in the purchase of a home is the cost of repairs. Whether the problem is a defective part in an appliance, a structural problem overlooked by the home inspector or just Murphy’s Law making its presence felt, it’s rarely the case that someone can buy a property and move in without spending at least a few dollars to fix, repair or replace something.

While these types of expenses are generally minimal in new homes and well-kept resale properties, they can be fairly significant when the home in question is a foreclosure property.

As housing prices have escalated over the past few years, more and more people have started to look at foreclosure properties as an affordable alternative to more traditional real estate purchases. It’s not unusual for a buyer to acquire a foreclosure property for 10 – 20% less than full market value, and sometimes at much more dramatic discounts of 40 – 50% or more. And online sources such as RealtyTrac make it easier than ever to find foreclosure properties. But while the savings possible on foreclosure properties are real—and really attractive—there are sometimes hidden costs involved.

One of these hidden costs is the cost of repairs. Foreclosure properties come in all shapes and sizes—from run-down mobile homes to palatial estates overlooking the ocean. But they all have at least one thing in common: their owner was in some state of financial difficulty. Generally, this means that a property in foreclosure may not have been kept up as well as a home buyer might like. It’s nearly a certainty that the typical foreclosure property hasn’t benefited from the type of pre-sales “fix-ups” that many homeowners perform to increase the sales price of their homes. And, as a rule, most foreclosure properties are offered “as is,” leaving it up to the buyer to find anything physically wrong with the property.

Is it worth saving 1% on a home purchase if it means doing extensive repairs? Probably not, for most people. On the other hand, saving $20,000 on the purchase may make it worth your while to invest in home repairs.

Determining the degree of disrepair can be something of a challenge as well. Early in the foreclosure process, when an owner is in Notice of Default (NOD), he or she may not be interested in discussing the sale of the home, making it impossible to do a thorough inspection. At the auction, or Notice of Trustee Sale (NTS) phase, bidders are generally required to buy the property as is, at the courthouse. And once the home has been foreclosed on by the bank, becoming a Real Estate Owned (REO) property, arrangements to inspect the property often need to be made with the lender.

“Foreclosure properties certainly present an attractive bargain, and often the amount of money needed to repair a foreclosure home is inconsequential compared to the possible savings. In fact, many successful investors have made a career buying, rehabbing and then selling these types of properties at a significant profit,” says Jim Saccacio, chief executive officer for RealtyTrac, the leading online marketplace for foreclosure properties. “But buyers do need to be diligent about determining the repair costs that will be incurred after the purchase. A property isn’t really a bargain if the cost of repairs equals or outweighs the savings on the purchase.”

Example 1
Estimated Value: $150,000
20% Discount: $ 30,000
Purchase Price: $120,000
10% Repair Budget: $ 12,000
Total Cost: $132,000
Total Savings: $ 18,000

Example 2
Estimated Value: $150,000
10% Discount: $ 15,000
Purchase Price: $135,000
10% Repair Budget: $ 13,500
Total Cost: $148,500
Total Savings: $ 1,500

Example 3
Estimated Value: $150,000
20% Discount: $ 30,000
Purchase Price: $120,000
20% Repair Budget: $ 24,000
Total Cost: $144,000
Total Savings: $ 6,000

If you’re interested in buying a foreclosure property, the following tips should help ensure that you’ll really get your money’s worth.

1. Physically Inspect the Property
It’s imperative to physically inspect the property if at all possible. In some cases, such as auctions, there is little or no possibility of an inspection. However, if you are able to negotiate a deal with the property owner directly during NOD, or pre-foreclosure, it may be possible to set up a walk-through prior to conducting the sale. During the pre-foreclosure period, the owner has a chance to sell the property or pay off the amount owed before the property is sold at public auction or repossessed by the bank. You’ll also be able to set up a physical inspection if you purchase the property directly from the foreclosing bank after the property has been repossessed. You can locate pre-foreclosures, auctions and bank-owned properties by checking with the local recorder’s office or through online services like RealtyTrac, which maintains the nation’s largest database of foreclosure properties.

If you’re not able to physically inspect the inside of the property, assess the property’s condition as much as possible by driving by and looking at the exterior. Add extra padding into your repair budget for unexpected problems. When there is no physical inspection of the interior, most experts recommend that you cap your purchase price at no more than 70% of the property’s estimated market value. You can determine a property’s estimated market value using Comparable Sales, which are available through MLS listing from your real estate agent or online through RealtyTrac.

You should never assume the property is in move-in shape simply because the owner says it is. Even if the home owner is being completely honest, he or she probably isn’t as accurate or objective in assessing the condition of the home as most real estate professionals would be. And an owner may be completely unaware of a major problem with the home. The bottom line is that you need to do your own research and be as thorough as possible.

2. Note Every Detail that Needs to be Fixed and the Estimated Cost for Each Repair
Have your inspector provide a list of all necessary repairs and, if possible, a ballpark estimate for what each of the repairs might cost. You can also ask the inspector for professional referrals for each individual problem area (roofing, plumbing, etc.). You can check with those professionals for approximate costs. Either way, you’ll know the true cost of the property you are buying.

If you find that your repair list is quite lengthy, you may want to reconsider whether the property is actually worth purchasing. If you’re dealing with home owners in default, you can’t expect them to have the resources to pay for any repairs before they sell the house, but you can use the cost of repairs to negotiate a lower purchase price. That’s why it’s imperative that you accurately document every single repair cost.

3. Distinguish Between Cosmetic and Structural Repairs
While you may be completely correct that the property could use a new coat of paint and some fresh carpeting, your first concerns should be structural. For most people, this can be tough because it’s inherently difficult to look beyond a home’s aesthetic appeal when deciding whether or not to purchase it. Beyond that, most people don’t really know how to determine the structural integrity of a property, unless the defect is so obvious that the home probably shouldn’t even be considered for a purchase. This is yet another reason why it’s imperative to hire the services of a professional inspector: to keep you on task when determining what repairs the property actually needs to make it suitable for living.

Especially with older properties, another point to consider is that homes do require a certain amount of ongoing maintenance. It’s expected that any home will at some point need a new roof or appliances. Don’t let this cloud your judgment or turn you off. Instead, focus on signs of necessary repair such as leaks in the roof or other damage. Make sure all appliances are at least in working order and not emitting dangerous fumes. Overall, you should be more concerned with damage than age.

This is not to say that cosmetic repairs shouldn’t be taken into consideration. However, they should be prioritized properly, so that any repairs that make the property safe and livable are taken care of first. Your goal should be to prioritize a list of repairs from most to least crucial. You can use the information for negotiation and keep yourself on track for what should be handled first when you purchase the property.

The bottom line: know what your priorities are. Remember, while that gold-colored crown molding might be an eyesore, replacing it won’t make you sleep any better on a rainy night under a leaky roof.

4. Get as Much Information from the Owner as Possible about the Property’s History
Aside from the tips mentioned, it’s a good idea to get some history on any home you are thinking about buying. Actually talking with the owner of a property about what has been done to it over time is a great way to learn about potential flaws or concerns to look out for. You should ask what repairs have been made and when, as well as whether any structural changes have been made and whether these changes were permitted under the local building codes. Inquire whether the seller has paperwork to back up repairs that have been made. This information may alleviate suspicions you have about repairs that have supposedly been made and may also be helpful when applying for home insurance for the property.

Of course, you’ll only have the opportunity to talk with the owner if you’re purchasing pre-foreclosure. If you buy at the auction or from the bank, you’re buying from a third party who has no knowledge about the history of the property.

It’s important to estimate the cost of repairs when you purchase a foreclosure property, but your strategy for estimating those costs will vary depending on the status of foreclosure. You’ll usually have the most accurate estimate when you buy directly from the owner during pre-foreclosure because you’ll be able to conduct a complete physical inspection and find out information about the property’s history from the owner.

If you buy a bank-owned property, you’ll still be able to perform a complete physical inspection, but you should allow for a little extra room in your repairs budget because you won’t be able to find out about the property’s history. You’ll need to pad your repairs budget even more if you purchase a property at public auction, where you usually won’t be able to physically inspect the inside of the property.

When you properly account for the repair costs when buying a foreclosure, you’re much more likely to realize a great bargain on your next home or investment property.