1 Foreclosure, 2 Foreclosure, 3 Foreclosure, 4…

This past Sunday there were 36 foreclosures advertised in the Hartford Courant. A few months ago there would only be one page of foreclosures advertised. Now we’re up to 3-4 pages of foreclosures every Sunday. This week, one of them was on my block in the West End.

The sign went up on the lawn 2 weeks ago. After it was listed in the Courant, I had 3 people call me to ask how they could go about purchasing the house. Here was my quick and dirty response… First, you should call the attorney managing the sale. They will give you specifics on how much debt is outstanding on the property (that they actually know about). The bank has also done an appraisal and you’ll need to bring a bank check to the auction in order to participate. The check is for 10% of the appraised value, or about $45,000 in the case of the subject house. There is no mortgage contingency allowed, so you need to have your money lined up if you were to actually win the auction, otherwise you can lose your deposit if for some reason you couldn’t secure a mortgage (the $45,000). Essentially, you have to be a cash buyer. There is no guarantee that you will actually be able to get into the house on the day of the auction in order to perform an inspection, so you may be buying the house blind. Who knows what the condition will be on the inside?

The takeaways from my mini-lesson: you need to have cash readily available in order to participate, you’d better be handy or have a contractor in your back pocket because the property may be a mess on the inside, and you need to have a market analysis done before the auction to understand what you’re willing to pay and the actual value of the property (the bank’s appraisal isn’t always accurate).

Everyone is fascinated with foreclosures now and think they’re a great way to make a quick buck. My advice, leave them to the savvy investors or contractors. But if it’s something you want to try and get into, here’s an excellent article from the New York Times that talks about someone that does short sales as their business. I personally hope my neighbor can save his house before it goes to auction.

Vacant House? Let Your Insurance Agent Know…

This morning I was speaking with a friend that’s an insurance broker. We were talking about homeowner policies for a buyer that I’m currently working with. I mentioned something about a vacant house and the broker cautioned me that a homeowner should always contact their insurance provider if their house is going to become vacant, as their coverage may no longer be effective. I had never heard of this, and after polling several agents in my office, neither had they.

Apparently most homeowner insurance policies only cover owner occupied houses. So if you move out of your home and it’s going to be vacant before the closing, you’ll want to alert your provider. If it’s only a couple of weeks until the scheduled closing, they may be fine with it. You may not need a change in policy. If it’s a longer, indefinite time period, you may need to have a change in policy, or rider, attached to your current policy. It may add an additional expense to your insurance bill, but at least your home will be covered if there is a major issue (fire, vandalism, etc.). Disclaimer: Check with your broker/provider for specifics, as I am not an insurance agent…

Remember, it’s also a good policy to have a neighbor, your REALTOR, a family member, etc. check in on your home at least once a week once you’ve moved out if you’re no longer in the area.

Dueling with Dual Agency

I often hear agents talk about how they are representing both the buyer and the seller in a transaction. This concept is called single-agent Dual Agency and it is legal in the state of Connecticut. I do not agree with this practice and believe that it is not in the best interest of either the buyer or the seller to work with the same agent during a transaction.

When you have a Real Estate agent represent you in a transaction, they are compensated to represent you and look after your best interests. If that same agent is also representing your counterpart, then they also have the responsibilty to do what is in the best interest of that person. Since it’s impossible to serve two masters, the end result may be that the agent is just trying to get the deal done as quickly and easily as possible, for them.

Consider this example: The seller is working with Agent Pat and tells Pat that the least they will accept for their house is $250,000. The house is currently listed at $265,000. Buyers come to an open house and decide that they like the house and want to put in an offer. They are not working with an agent at the time. Agent Pat offers to represent them and the buyers and sellers agree that this would be fine. The buyers tell Pat that they are qualified to spend $260,000. The buyers also tell Pat that they feel the house is overpriced compared to other comparable houses they have seen. They would like to initially offer $240,000 and will not go over $245,000 through the negotiations.

Now, what is Pat to do? Pat has a buyer willing to bring an offer for the house, but Pat knows that the buyer and seller are $5,000 apart from the most that will be paid and the least that will be accepted. What Pat should do is have the buyer submit their offer and present it to the seller. They will most likely negotiate back and forth to their upper and lower limits and then realize that there is no overlap.

However, $5,000 isn’t really that big of a gap to bridge, so Pat may try to get the buyer to extend their maximum offer price, or get the seller to lower their minimum selling price. It’s really tempting for an agent to “get the deal done” particularly if they have influence over both of the parties and know the size of the gap. If the agent feels the gap is surmountable, it’s tempting to convince one of the parties that they should offer more or accept less.

If you have your own buyer’s agent, this is less likely to happen. You tell your agent your maximum offer price. They present your offers to the seller’s agent, who then presents to the seller. You negotiate back and forth until neither party wants to go higher or lower. Your agent says this is the highest you will go. The seller’s agent says this is the lowest the sellers will go. You will walk away because you don’t want to offer more and your agent will not put undue pressure on you to buy this house. It is their job to help you find another house that works.

If you want to protect your best interests in a real estate transaction, it is always prudent to have your own independent representation. Think about how attorneys work, they never represent both the plaintiff and defendent in a case. It’s impossible to be impartial.

Can't Sell? Become a Landlord

With higher levels of inventory on the market, it’s inevitable that some homeowners simply won’t be able to find buyers for their homes. A viable and increasingly popular alternative is renting your home, or offering a lease-to-purchase option. This will allow you to cover your current mortgage payment and purchase your next home if you must move (due to job relocation, etc.).

Being a landlord isn’t for everyone. Here’s an excellent article from CNN Money which explains when you would want to rent rather than sell your home, if you’re a good candidate for being a landlord, and how to build a team to handle the transaction effectively.

Personally, I’ve been getting a few calls a week from people looking to rent homes in West Hartford, rather than buy. They’re hesitant because of the current mortgage market and wonder if housing prices will continue to drop. Local sellers are also becoming more aware of the situation and are increasingly offering a lease option when listing their property for sale in the MLS.

As a seller, the more options you offer for someone to cover your mortgage, the quicker you can move on to your next home. Just something to consider as we deal with a changing housing market.

Giving Away Equity. How Much is Too Much?

A few weeks ago I was walking around my neighborhood in the West End of Hartford and saw a couple moving into a house. I welcomed them to the block and during our conversation they mentioned that they bought the house in a private sale. This is not uncommon for the West End. People fall in love with the architecture of certain homes and tell the owners that when they’re ready to move to give them a call.

Well, this past week I was doing a CMA for someone in my neighborhood and it turns out that the private sale house that recently sold was a comparable home. So I pulled up the city assessor data to see if the sales price had been recorded yet. It had. And I basically fell off my chair when I saw it. The house closed at a price at least $100,000 LESS than what it would have sold at if it was a public sale, or at approximately 62% of its estimated market value. Ugh. This made me feel sick for the previous homeowner.

Now, I realize that there may be reasons for purposely selling your house below market value. Maybe the buyer is a relative. Maybe the seller is financially distressed and needs to unload the property as quickly as possible. Maybe the seller is filthy rich and just doesn’t care. I don’t believe any of these reasons were the case in this particular situation. I believe the seller just didn’t know the market value of their property.

So, if you are thinking about selling your home on your own, please at least call a Real Estate professional to get an estimate of your home’s value. It is always free and there is no obligation. We understand that some people sell houses on their own, just like some people prefer to fix their own cars rather than going to a mechanic. It’s the nature of the business. However, we would also like to see you get the most for your home, whether you’re going it alone, or using an agent. Because finding out after the fact that you sold your house at 62% of market value, without intending to, will never leave you with warm fuzzies in your belly.