A survivor’s guide for home buying
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Tess Vigeland: If you thought that Halloween was scary, then wait ’til you hear the latest on foreclosures. Back in April, we did the show from Seattle, and we told you that it was behind the curve in housing woes. Well that curve has hit.
According to RealtyTrac, foreclosures in the Sea-Tac metro area registered a 71 percent increase in the third quarter over the same period last year. Chicago, Houston, Detroit and Atlanta round out the top five jumps. It’s yet another wave of misfortune in the housing market. The usual caveat is that this is all helpful for buyers. But not so fast.
Here’s Marketplace senior business correspondent Bob Moon with a survivor’s guide for home buying.
Bob Moon: With all the distressed properties flooding the market, Rule Number One is simple: If you’re looking to get the best bang for your buck, don’t be afraid to say “no.”
Josh Stephens: I don’t want to do that, but I may just have to walk away.
Consider the experience of Josh Stephens here in Los Angeles. He bid on a distressed condo, in what’s known as a “short sale.” The lender agrees to work with the struggling home owner to unload the property at a loss, to avoid the deeper loss a foreclosure would bring. Stephens complains it took six weeks for the bank to make him a counter-offer, and even then, it came back at 10 percent above the home’s list price. Some short sale.
Stephens: You know, I’m a buyer who wants to buy. I want to take this place off the market, you know, out of their inventory, which is apparently what we need to do to get the real estate market back in shape, and yet it seems like there’s this corporate monolith behind the scenes that actually doesn’t want to make it happen.
Should he walk? Rick Sharga is an expert on the foreclosure market at RealtyTrac.
Rick Sharga: If there’s something about a particular property that’s making it difficult, walk away, move to the next property. There’s going to be five or six million more opportunities for you to do this over the next three years.
Rule Number Two: If you’re buying at a foreclosure auction, beware the bidding war.
Foreclosure auctioneer: Number 223 in Maplewood, let’s go! $39,000! $39,000! Great deal, $39,000 to buy now…40, 50, now 60, now 70, now 80…
Sharga: People really get caught up in the emotion of the auction, and will very often overpay, compared to what they’d be able to buy the property for on the open market.
Foreclosure auctioneer: 110…
Rule Number Three: Don’t jump before you’re sure of what you’re buying.
Just the other day, a couple thought they’d bought their dream Palm Springs getaway home for a steal at a courthouse auction. Actually, their winning bid of $137,000 only bought them the second mortgage on a home that was still saddled with a big, unpaid primary loan. Only when the New York Times started asking questions did the bank agree to give them their money back.
Sharga warns courthouse auctions are the riskiest way to buy a foreclosed property.
Sharga: This is an area where we are advising people who have not done auction purchases before, who are new to the market, to probably stay on the sidelines until the dust settles. And even at that point, we generally recommend that if this is your first rodeo, you make sure you have somebody who can ride alongside of you and make sure that you don’t get thrown off the horse.
In courthouse auctions, he says, you’re buying “as is,” and paying cash with no legal recourse.
But Sharga argues the typical foreclosure sale should be safer than ever, once the current documentation logjam is cleared.
Sharga: If you wait through that delay, you’re getting probably the safest purchase you could ever imagine, because all the “I’s” are dotted and all the “T’s” are crossed. And realistically, if you’re a buyer in one of those situations and you get title insurance on the property, you’re protected anyway.
Rule Number Four: Don’t let fear stop you from grabbing a good deal.
San Diego-area Realtor Michael Wolf is author of “The First-Time Homebuyer Handbook.” He insists the cautionary stories that have popped up in recent headlines are rare.
Michael Wolf: With such chaos going on, with banks being taken over or failing, and dealing with massive amounts of foreclosures, those things are going to happen because nothing’s perfect, but they’re definitely the exception to the rule.
Which brings us to Rule Number Five: When it comes to the increasingly arduous process of getting your mortgage approved, make sure you’ve done your homework.
Amy Tierce runs Fairway Independent Mortgage near Boston.
Amy Tierce: The truth of the matter is that when you have somebody who’s well teed-up, so we’ve had all the dialogue in advance of what to expect to going into it, what paperwork we’re going to need, some of it is just being prepared to dig deep and do the work you need to do to make it go smoothly — and it will.
In other words, a little preparation can go a long way.
I’m Bob Moon for Marketplace Money.
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