FIRST TIME HOMEBUYERS

Whether you're a first time homebuyer or a seasoned pro, there are many things you need to think about when purchasing a home. Where, what, why, how much, ...

Getting Started
The first step with buying a home is getting pre-approved. You can get pre-approved with a lender either over the phone, on the internet or in person. Since this is such a large purchase and the level of trust that's required when buying a home is HUGE, I recommend meeting the lender and getting pre-approved in person. You want someone that will be at the closing with you and someone that you trust to work hard if necessary to overcome any obstacles. If you are comparing lenders, look not only at the cost of your loan (compare Annual Percentage Rates or APR's, which include the costs of the loan, do NOT simply compare interest rates) but also look at the level of service and the trust factor. Do you trust this person with perhaps one of the biggest purchases of your life?
Just because you're preapproved for $xxx,xxx doesn't need you need to spend this much. Now, determine how much you want to spend. Take an honest look at your current liabilities, spending habits and your future job stability and future job growth. Pick an amount and a monthly payment that you feel comfortable with.

What to Look For?
Townhome or single family, area A, B or C? How many bedrooms, bathrooms, garage stalls, ???
Time for another honest self-assessment. Each decision maker (i.e., husband and wife) needs to make two lists: a list of seven needs (can't do without) and a list of seven wants. Here's a list of samples to choose from:
# of BR; # of BA; # of BR on one level; # of garage stalls; city; area; school district; distance from family, friends, school, daycare, church or work; fireplace; cul-de-sac lot; type of home (single family-one story, split level, split entry, two story, modified two story, one-and-half story or townhome: quad, one level (upper or lower), end unit, interior unit); age of home, private master bath; room sizes; location of laundry; walkout basement
Now, rank your needs and wants in priority order.
Finally, each decision maker should discuss his/her list with the other's list(s) -- no fighting at this point. This is meant to arrive at a consolidated list of what you will be looking for in your next home. If you can't reach an agreement yet, don't worry. As you look at a few homes, your needs and wants will become clearer but it is important to at least give it some thought before starting to look.

Looking for Homes
It shouldn't be any surprise that over 90% of all people look extensively on line before ever calling a Realtor or setting foot in an open house. As you browse the internet, make notes of what features you like & don't like.
You may want to visit open houses also. This will help you get a feel for neighborhoods and architectural styles as well as help with that needs & wants list. This is also a great way to interview Realtors. You don't need a Realtor to help you find a home but it will sure help. A Realtor will be looking for you full-time and can e-mail you information and homes to take some of the burden off you. The best way to find a Realtor is to ask friends or family if they have someone they trust but another good way is to interview Realtors at open houses--they're a captive audience and you can just walk out if you don't like what you hear.
Perhaps the biggest mistake you can make through this process is talking yourself into a home. The second-largest mistake would be talking yourself out of a home. You'll know the home you want to live in when you see it. The average home-buyer looks at 10-15 homes before buying one. It isn't rare to look at only a few homes or to look at 50 homes. The home has to feel right, it's a lot of money you're spending!
Look at only 10 or so homes each day and try to immediately classify each home as a possible or as a no. Take notes on each home you look at. The features will all start blending together very quickly otherwise. Try to keep this short list of possibles limited to only 3-4 homes.

In two weeks (9/13) - Writing your offer and what to expect at your closing

BUYING A HOME AT AUCTION

Purchasing a property at an auction, whether online or live, is not uncommon these days. These properties usually come up for sale in these situations: when an owner deceases, when the owner just wants to get rid of a property and cash out quickly, or when the bank has taken back a home that has gone into foreclosure. Here are some things to consider before getting involved in an auction purchase.

1.
Complete the appropriate research on the property being auctioned. For example: if it is a single property that went into foreclosure, acquire the details of the property: its size, its amenities, and what the opening bid is. Check with the county recorder or local title company for a list of properties currently in foreclosure.

2.
Compare the sales prices of similar properties in the area so you have a good idea of what the subject property is worth. Properties within 3 miles of the subject property are the most reliable predictors of value. Compare sales of properties with the same number of bedrooms, bathrooms, and square footage if possible.

3.
Get financing. Bring your pre-approval letter from your loan officer to the auction. Most of the time you will have to register before bidding and show proof of funds with the bank letter and a cashier's check. Typically, homes at auction require a deposit of from $1,000 to $5,000 for an accepted bid, and the remainder of the financing must be in place within a specified period of time, usually within 30 days. If you are lucky enough some auctions will have financing via Contract for Deed (when the owner finances the property for you so you don't have to take out a loan).

4.
Know your price limit. Auctioneers work hard on creating an atmosphere of agitation and excitedness. Don't get swept up in the moment. Know how much you are willing to spend and stick to it. If the bidding goes above your price, get up and walk out. You'll be less inclined to get sucked into the bidding.

5.
Go to a few auctions first before you actually purchase a home using this method so you can see how it takes place. Sometimes there will only be 5 people there and other times it will be a packed house. It will help prepare you for when you get serious about buying a home this way. There are many deals getting swiped up every day during real estate auctions. Not all the savvy investors can be at all the auctions. If you go to enough, you are bound to find a deal you can't pass up!

SELLING IN A SLOWER MARKET

The media is all abuzz with news of a buyer's market and doom-and-gloom. Have you heard it?

Let's look at some perspective. Buyers hear they can call the shots and offer at least 10% lower than asking prices. Sellers hear their homes will take months to sell and even then, they shouldn't hope to get close to asking price. Sound familiar?
It's true that there is currently an oversupply of homes in the Twin Cities market. The past few years with low interest rates and rapidly appreciating real estate values have seen many investors get into the market. One out of three homes sold in 2004 and 2005 were second property purchases-either vacation homes or investment properties (re-hab, flips or rentals). In addition to this, look around the Twin Cities area. There is new construction everywhere you look. (sidebar note: Much of the new construction is also financed by investors and not who you'd think. These are average people like you and me looking for a better rate of return than the stock market can provide, not the three-piece suit cigar chomping "Mr. Biggs")

What this all means is there are LOTS of homes for sale. In July 2006, there were 6.76 homes available for sale for each active buyer. The prediction for August is 6.36 homes per buyer.

If you are thinking about selling your home, think back to economic fundementals - supply and demand. The crossing of the supply and demand curves determine what the market is willing to pay for your home. You have a few techniques to influence this market value. To increase the value of your home, you need to either increase demand or decrease supply. You need to DIFFERENTIATE your home, make it stand out from the pack where possible. How do we do this? Either through strategic improvements in the right areas of your home or through showcasing of your home's features.

Strategic Improvements. Have a trusted acquaintance or Realtor walk through your home and give you their honest opinion as a homebuyer. Are the countertops dated or damaged? Kitchens and bathrooms are statistically the best places to invest your money and give you the most bang-for-your-buck. Use caution with how much money you put into your home just to sell it. A fresh coat of paint goes a l-o-n-g way to improving the feel of a home's interior.

Showcasing Your Home's Features. An accredited Staging professional, interior designer or Realtor can walk through your home and give you a list of recommendations to ensure your home will feel warm and welcoming to buyers and ensure key features are made more prominent. Common items are moving furniture away from walls, subtle accent paint on one wall of a room and editing (eliminating clutter). Ensure closets and other storage areas aren't jam-packed with stuff. Make them 1/2 full to give the impression of spaciousness. Use 1, 3 and 5 for any arrangements. These are artistic numbers - the mantle, counter-top, etc. should have 1, 3 or 5 items to give your home a harmonious feel. Don't have too many pictures or too much furniture in a room. Try to give at least 36", if not 42" of walking space through your furniture arrangement. Remember - less is more.

Does this sound like work? Possibly. How many people do this? Not many. If you are willing to invest a little time, effort and possibly a small amount of money into ensuring your home is well-positioned in the market, it will set your home apart, effectively reducing the supply of homes in your category which may give you a little more money for your home, improve your negotiating position and will cause your home to sell faster.

Doom and gloom? No. Challenging? Yes. And who doesn't like a good challenge?

FIXER UPPER TIPS & TRICKS

Most of you know someone or have heard of someone taking part of the game of fixing and "flipping" houses. The most popular people that do this for a living are the "We Buy Ugly Houses" people. Remember the commercials and billboards? "Ug buys ugly houses." They are the extreme fixers and/or flippers.
Not everyone has the capital or know-how to do the advanced deals that they do. It currently costs over $100,000 to start a We Buy Ugly Houses (HomeVestors) franchise. These tips are not for them since they have advanced training to tell them how to complete those purchases. These 10 tips are for the people that are beginners and want to try to take on the challenge of fixing and/or flipping.

1. NEIGHBORHOOD is key. Don't buy an investment property if you don't know the real estate values in the area that you are planning on purchasing in. Just because it looks like a deal doesn't mean that it is.

2. CONDITION. Avoid houses that are in excellent condition. Just the opposite applies as well: don't buy tear down properties, those can get way to expensive.

3. CONDOS/TOWNHOUSES are not the best thing to fix and flip, they usually are all around the same price range in the development and unless you get it super cheap, there won't be any room for improvements.

4. YOU MAKE THE MONEY ON THE BUY. The normal definition of a potentially profitable fixer-upper house is a sound, well-located residence that can be bought for at least 25 percent below recent sales prices of comparable nearby homes in excellent condition. If you can't purchase it that cheap, then move on to another house. You may have to offer on 20 houses before you find the one that makes the most sense.

5. LOCATION, LOCATION, LOCATION. In addition to being a structurally safe house in need of profitable (primarily cosmetic) work, the property should be located in a decent neighborhood (not in a high-crime neighborhood).

6. SCHOOL DISTRICT. Fixer uppers don't have to be in the top school district for the area but make sure to investigate the schools that the potential buyer's kids would go to if they bought your fixer. Just because you don't have kids doesn't mean the buyer won't. They more than likely will.

7. LOW CRIME RATES. No matter how decked out a house is, if it is in a high-crime area the market value will be held down. Don't waste time looking at homes for sale in high-crime neighborhoods. Ask yourself this: Would I want to live in this neighborhood? Get into the mind of your potential buyer.

8. DOLLAR SENSE. Just because you are going to add a new roof to a property doesn't mean you will be making a profit on the sale. Don't do improvements that would be trading dollars for dollars at the end when you could be doing little things that add up fast such as: a fresh coat of paint, new carpet, and decorating.

9. NO BRAINER. Ask yourself when you are about to jump into the huge investment if it is a "no brainer." Is priced way below market value? Does it just need to be cleaned and have minimal repairs? Is the average market time in that area lower than normal?

10. ESTIMATE HIGH. Every little repair can add up fast, decreasing your bottom line. Not to mention all your time. Make sure to figure in a couple thousand extra when you are calculating the price you need to get the house for. You won't want to cut a check at closing, you want a huge check cut to you!

Is There a Real Estate Bubble?

In some areas of the country, as the local economy cools, local unemployment and inflation rises causing homes to become less affordable which leads to an extreme oversupply of homes and prices to drop as sellers become increasingly desperate to sell their homes.
In the Minneapolis-St.Paul area, the unemployment rate is at a very healthy level (less than 4% last time we checked). The challenge to the current market situation is the relatively high housing supply - 39,000 homes, up from the 29,000 level of one year ago.
Homes are selling, just not with multiple offers or in less than one week as they were just two to three years ago. The market has returned to what economists are calling a healthy three to six month time on market.
In summary, the housing market has entered into a healthy and balanced situation that doesn't overly favor either buyers or sellers. The 10% appreciation we have experienced in the past 5-10 years is now expected to be closer to 4%, still a healthy rate of return on your investment, and don't forget the tax advantages of home-ownership.

What this means to you as a seller: Stand out from the six homes each buyer has to choose from (for every home that sells each month, there are 5.18 homes that don't). To do this, your home needs to be properly prepared, accurately priced, and agressively marketed.
What this means to you as a buyer: Know your market. Know what homes are selling for in your area of interest. Know what a home should sell for. Armed with this information, you can prepare an offer independent of the asking price and feel comfortable that you purchased the home at a reasonable price.
With all this said, homes are selling, there are deals to be found, and to your advantage, interest rates are still at historically very low levels.
Tune in next Wednesday for more information on real estate and housing in the Twin Cities area.