Why Buy Real Estate Now?

Photo courtesy of Let Ideas Compete’s photostream via Flickr

Now is a good time for first time buyers to buy their first home according to market signals. Are you poised and ready to benefit? If not, get your ducks in a row now because this opportunity won’t last much longer.

With new short sale guidelines finally implemented and the artificially inflated quarterly reports out from the likes of JPMorgan, a unique window of opportunity has opened for some first time home buyers – specifically for those with a credit score of at least 750. For this group, I’d suggest taking a serious look at buying a short sale listing.

A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan.[1] It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. -Wikipedia

(Read more about the short sale process and potential credit implications here.)

Find a realtor you feel comfortable dealing with. Just remember – you’re in charge. Don’t let anyone lead you around by the nose. There are a lot of honest, hardworking realtors out there who can help, but even so, your trust in them should be tempered with wisdom. They’re only human, too.

Avoid getting caught in the trap of having the same realtor represent both you and the seller. Your best interests could be seriously at risk in this situation. Before signing a buyers agreement with any real estate agent, you could check out their property listings first.

If you’re not interested in making an offer on any of their listings, go ahead and put them to work. If you are interested in one of their properties, you could have another agent represent you in making an offer on just that one property.

In the buyers agreement, there will be a place where you can write in the address for the house you want to make an offer on. That way they’ll only be representing you as a buyers agent on that one property and if you don’t get to buy that particular house, for whatever reason, your buyer’s contract is automatically cancelled. From there, you’re free to use your preferred agent for making all future offers.

Up to this point in time, one of the most frustrating and irritating problems with buying a short sale property has been the big banks and other mortgage holders dragging their feet. Often they show blatant disrespect for everyone concerned by not responding to offers and phone calls in a timely manner.

I remember times when I was negotiating short sale purchases, for clients and often just for myself, when the banks would drag things out for literally months. Hours and hours of my valuable time was wasted making follow up calls to the banks trying to get them to make a decision. It was crazy.

I’m not a huge proponent of big government intervention into our lives, however, I believe these new short sale rules are a good thing for people like you and me. The only problem I see at this point is that not all mortgage holders are required to participate. So before submitting an offer, ask if the bank you’ll be dealing with is a participant. At least, you’ll know what to expect going in and you could even decide to pass on that particular property to avoid that whole game they play – the “this is our game and we make the rules and you’re a nobody to us” disrespect and timewasting game.

Home values are still falling and could drop another 30% in some areas during 2010. Plus there’s all that shadow inventory JPMorgan and other big money players are essentially hiding in order to avoid showing a loss on their books.

These are important things to be aware of, but, with the right strategy, you could still get a great deal in a stable area at a price point that only fluctuates slightly during the final stages of this residential real estate market correction. After that you could find yourself riding that big happy wave of market recovery.

One way to help minimize the risk in this situation would be to require your buyer’s agent to furnish you with a list of all comparable properties for the one you’re interested in buying, not just 4 or 5 so they can justify the price. You may run into some resistance on this, but you’d be wise to insist. Realtor-speak for these are “comps”.

Unfortunately, a large percentage of realtors don’t know how to pull proper comps and it’s too much for me to completely cover in this article. So I’ll just give you the most important basics.

There are also some online websites where you can pull your own comps. They’re okay for initial research, but there’s generally a overall problem with accuracy.

The house you’re interested in buying will be the “subject property” and the comps you get should meet these guidelines:

• Sold- They should all be recently sold properties. The more recent, the better. Especially in this declining market. One nasty little trick I’ve seen pulled on unsuspecting first time home buyers is to include properties that are listed for sale, but not sold yet.
• Location- In the same subdivision as the subject property or in a nearby subdivision that’s very similar. Preferably within a 1-2 mile radius of the subject property.
• Age- Within 3-5 years, give or take. For example, if subject property was built in 2003, the best comps would have been built between 1998 and 2008. The closer to the same age, the better.
• Structure- Same number of bedrooms, living areas, bathrooms and garage bays as the subject property.
• Floorplan*- The floorplan should be as similar to the subject property floorplan as possible. For example, the bedrooms of each property don’t necessarily have to be in the same place within the house.

*NEVER accept a comp with a different number of levels than the subject property. If the house you want is all on one level with no basement, all comps should be the same.

You probably see the pattern by now. The comps should be as much like the house you want to buy as possible. Here’s a good article with more in depth information on how to effectively use real estate compsthat was written as a resource for real estate investors. Because of that, it goes into much more depth than you might find elsewhere.

Finally, we come to a huge final piece to this strategy – Price. I’ll cover this in another post within the next few days.

If I’ve missed covering something, please mention it in a comment.

**For clarity, I’m not an attorney, a financial advisor, a real estate agent or a mortgage loan officer. I’m simply sharing my life experience with you. Seeking the advice of an experienced, licensed professional in any of these areas is always a good idea.

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