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Foreclosures- Hot Deal? Or Hot Mess?

The It word in the real estate community is the F word. Foreclosures. There are a lot of them out there, they’re doing interesting things to the market, and there are a lot more coming. As of March of 2011, there were around 2,000,000 houses late on their mortgage payments (yes, that’s 2 MILLION) 40% of which were delinquent by 12 months or greater.  Foreclosures are going to be a fixture of the market for some time until we get back on track, so we might as well get familiar with them. So- hot deal? Or hot mess?

For the real estate virgins out there, I’ll break it down a bit before I plunge in. I really hope that everyone knows if you buy a home with a loan, then you are using that house to secure the debt. What a lot of people are missing when they look at that equation is the human element. The people who are leaving these homes are not leaving them happily! While you will have the occasional foreclosure in pristine shape, the fact of the matter is that Donna Reed would not have signed a balloon loan (and anyone that perfect is totally repressed so if the hubby lost his job then the eviction might turn into a rendition of The Shining). Expect these properties to be damaged or run down (getting evicted is bad for drywall, and the owners tend to leave with everything- including the kitchen sink). If you do not want a fixer-upper then don’t go looking at foreclosures, you will still get a great deal.

With all the foreclosures out there, lovely homes in great condition are selling for far less than their assessed value- these are the major deals that people without Home Depot memberships are going to want to take advantage of. If you are a seller, resign yourself to the fact that the market is against you, but any losses that you take you will recoup by buying into your next home at a lower price as well. Don’t make the mistake of lowering your price when the market starts to swing back the other way- do it now. If you sell low when things are picking back up, you might wind up getting the worst of both worlds.

This is where your real estate agent comes in. They will be able to tell you what a fair market value is for your home- the best price at which it is most likely to close. Listen to them when they tell you this, they get it scientifically by using comparable homes in your area (unless they are Traci Amick, who is a house whisperer with reportedly psychic powers). If you are a buyer, listen to your real estate agent’s feedback after you describe what you want. If you have told them you don’t want to do a lot of work and they politely let you know that your price range is off- there is a reason for that. You are not going to be purchasing a foreclosure- you will be purchasing a home, from a person, who likely has a mortgage to pay off.

One final note of warning on foreclosures, to all the Tim Allens who are going to fix up what has fallen down with the market (and my hat is off to you, these homes need your help)- please expect about 50 pages of disclaimers with the purchase of your foreclosure, and don’t be intimidated by them. All they are saying is that the bank is done with the house once you buy it. Just make sure that you get it inspected, so you have a realistic idea of what you are getting into.

Why bother with a real estate agent?

Between Zillow and Realtor.com- who needs ’em, right? Wrong! There are a TON of reasons that a licensed agent will turn your search from painful to pleasant, but if you’re anything like me then you have a 30 second attention span- so I’ll just give you the best of.

1)Buying a house involves a lot of laws! Know what happens when you go to court without a lawyer? You Lose! The closing lawyer is there to represent the bank’s interest, not yours- don’t you want someone familiar with real estate law to watch out for you? Don’t get stuck with cows roaming over your land because the property you just bought came with an easement (and no, you can’t legally do anything to stop them if you really did buy a servient estate, so I hope you like cow patties). Don’t agree to pay all the points on your buyer’s loan if you are selling (you just lost roughly your real estate agent’s fee right there). Agents spend a small fortune to get licensed so that YOU don’t have to worry about that kind of thing (ok, so like a large piggy bank, not a small fortune, but still!)

2)An MLS search form is not the same as the real thing! (And if you said “what?” when I said MLS then stop reading and call a broker). A licensed agent is required to pay a monthly fee for a much more detailed search engine than you are privy to. Sure maybe you can find a 4 bedroom for $150,000 on your own, but what if you could have found one with a fireplace for $200 bucks more? Or if you’re not a pyro (then you should be- just kidding) then your agent can pick out 4 beds with hardwood floors, or fenced backyards. Free searches are free for a reason.

3) Buying a house should make you happy! Not stressed. But the truth of the matter is it’s a very involved process, and having someone to help co-ordinate that process, hold your hand during the closing meeting (figuratively of course, a 3% commission only buys so much!) and talk you down from the roof of your crappy corporation’s office when the bank tells you you only qualify for a $100,000 house on your laughable paycheck, can be (in this case quite seriously) a life saver.

It’s true that not every real estate professional is, well, professional (that’s true in every job from retail to construction to modeling)- so definitely get to know them before signing a buyer’s agency/listing agreement. Ask questions and get a good idea of how they conduct business.  If you do that, and you can keep in mind that they are people too and can neither work 24 hours a day nor conjure miracles, then you will find that your real estate experience can be a very enjoyable one.