Monday, June 26, 2006

First time buyers don't beware

ARM loans. FHA loans. VA loans. PMI. WHEDA. Buying a house can be an exercise in muddling through alphabet soup.

And if you’re a first-time home buyer, that soup doesn’t look real appetizing.

A home is likely the largest single purchase a person or couple ever makes, and the task can be daunting. But armed (not ARMed) with the right information, a home purchase can be a reality for many.

As it is with a home, though, a home purchase is going to be better if built on a solid foundation.

"There are three things that are really important for first-time home buyers," said Greg Mc-Bride, senior financial analyst with "First, months in advance buyers should check their credit reports and clear up any errors. You don’t want to let someone say something about you that isn’t true."

Clearing up errors can im-prove your credit score, and the higher your score the more likely you are to get a favorable interest rate.

"Second, you need to understand how much house you can afford and how much money you can afford to borrow," McBride said.

(Mortgage calculators are available at, or type "mortgage calculators" in your browser’s search engine.)

"Finally, you want to get preapproved," McBride said. "Do these things before you’ve even stepped out to start looking."

A visit to your loan officer is a wise, early course of action.

"Probably one of the biggest things is to be comfortable with your loan officer," said Dennis DeGrave, personal mortgage consultant with First Choice bank. "We can help them understand what kind of loan program is best for them, but it’s easiest to do face-to-face."

A preapproval letter also makes you more attractive to sellers who have another offer, aside from yours, to consider.

"The seller wants preliminary assurances that the buyer can afford the home," said Debbi Conrad, director of legal affairs with the Wisconsin Realtors Association.

"It’s the person who has preapproval who will have the advantage," McBride said. "It really gives you a leg-up."

Down payments

The days of a 20 percent down payment on a home are a thing of the past, mostly.

"Probably 90 percent or more of my clients have had less than 20 percent down on their home purchase," DeGrave said.

"Twenty percent just isn’t the norm anymore," Conrad said.

In fact, many lenders offer 100-percent financing to qualified individuals.

"The fact that someone doesn’t have any down payment shouldn’t deter them from looking into a home purchase," DeGrave said. "It’s nice to start with a starter home and build equity in it. Then, a few years down the line, they’ll have the equity and can use it as a down payment for their future home."

But McBride cautioned against accepting 100-percent financing blindly.

"A lot of people don’t have money in savings," he said, noting that last year, 42 percent of first-time home buyers didn’t have any down payment. "Yeah, you should try to come up with some kind of down payment, but don’t erase your savings. (Home buying) will take cash, one way or another. You need a cash cushion and the ability to squirrel away money, because you will need it."

Loan products

When deciding among the many loan products out there, experts suggest looking at the amount of time you expect to be in the home. Those who expect to set up shop for a while in one home may consider different products than those who expect to turn around and sell in the near future.

"For some people, it may be beneficial to avoid PMI (private mortgage insurance required of those whose loans exceed 80 percent of the home value)," DeGrave said. "They can do that with two loans. But keep in mind that PMI eventually can and will drop."

McBride suggests those hoping to be in their homes 10 years or longer will benefit best from a 30-year fixed mortgage, while anyone looking at less than 10 years in a home would be better off with a loan product that has a low fixed rate for a period of time - generally three, five, seven or 10 years, depending on the product - but will adjust annually after that initial time period is over. For example, a 7/1 loan will have a fixed interest rate for the first seven years, but that rate will adjust annually thereafter, depending on market conditions.

"If you plan to sell before the initial term is up, it’s tantamount to a fixed-rate loan, but the rate is less than the rate on a 30-year fixed loan," McBride said.

Other considerations

Do you need a Realtor? Conrad says yes.

"They can steer you through the legal documents and all the forms, disclosure and hazards," she pointed out.

What about an attorney?

"An attorney can be of most help once you’re ready to write the offer," Conrad said.

Is an inspection necessary?

"It’s an absolute must," Conrad said. "Even if the seller is honest on all the disclosures, they just may not be aware of all the problems. It’s also necessary for the buyer to understand that the home won’t be perfect. None are."

This story appeared in the West Bend Daily News on June 26, 2006

Sunday, June 25, 2006

Finding a great Realtor

Not everyone can buy or sell a home. So finding the right real estate agent to help you with your next real estate deal can make he difference between you making an OK deal or a great deal. Real estate deals are complicated, and if you’re like most home buyers, a good portion of your assets are on the line.

But all real estate agents aren’t created equal. Some Realtors get personally involved every step of the way, while some farm out a lot of the work to other associates. The amount of formal education a Realtor has is important. But so is the knowledge he has about the neighborhoods you want to buy into.

Before you get started, it’s important to understand exactly who you’re shopping for. Many people use the terms “Realtor,” “real estate agent” and “real estate broker” interchangeably, but they aren’t mutually inclusive.

A real estate agent is a person who has a real estate license from the state in which they practice. Keep in mind, though, the requirements for getting a real estate license in most states are pretty minimal. A Realtor is a real estate agent who has earned additional certification from the National Association of Realtors. And a real estate broker is a Realtor who has yet more training and a different license than either real estate agents or Realtors. Got that?

The exact title of the real estate professional you work with isn’t as nearly important as the level of commitment, energy and local knowledge he/she may have. But trying to find the real estate agent who embodies all the above can be a challenge.

The following tips for choosing a real estate partner will put you ahead of the game:

1. There are only a few types of real estate agencies out there; small ones, large ones, franchises and independent agencies. Don’t get hung up on the differences because the individual agent is more important than the real estate agency.

2. Know the type of representation you need. Most agents are seller’s agents, meaning they only represent sellers’ interests to the disadvantage of buyers. This is great if you’re a seller, but if you’re looking to buy a home inquire about buyer’s agents — brokers who represent the buyer’s interests in real estate transactions. Their fees for finding you a home are usually covered by the seller, not the buyer.

3. Finding the right agency requires some legwork. There are a lot of real estate agencies listed in the phonebook or online. If you choose one at random you’ll probably live to regret it. Explore the neighborhoods you’re interested in buying into and look for Realtors/brokers who are nearby or who already have several signs placed in yards. There’s a better chance that these Realtors are already familiar with this neighborhood.

4. Search first for a real estate partner, not individual homes or properties. You may be looking through your newspaper’s real estate section one day and fall in love with a home that a particular real estate agent is listing. However, the agent might tell you that property is taken, but they have others you’d love. Less reputable agencies will often use this bait and switch trick to lure in customers. Chances are you’re not going to get the first home you fall in love with anyway.

5. Look for experience. The real estate profession has a high rate of turnover, which means there are a great many untested agents who are constantly moving in and out of agencies. If you like the personality or appearance of an agent, the next question you should ask is how long they’ve been practicing. If it’s been less than two years, keep looking; that is unless you’re entirely comfortable with that agent.

6. Look for commitment. Many real estate agents only practice on a part-time basis and they might not have the time or drive to give you the attention you deserve. Also, many brokers are only interested in representing properties within a certain price range. If your home isn’t in it, they might not give you the attention you deserve.

7. Interview real estate agents you’re interested in working with. It’s a good idea to sit down and visit with at least three prospective Realtors. This is the best way to get a feel for them and what they can do for you. Don’t be afraid to ask how well they know your neighborhood and exactly how often you’ll hear from them. Ask for references and check them out. Your relationship with your real estate agent will be a working one, and if you don’t think you’d work well with him or her, you’re probably right.

8. Ask friends to refer you to real estate agents they’ve had good experiences with. Or if you prefer, you can start your search at the National Association of Realtors’ Web site; they have listings of Realtors in your area.

9. Select a real estate agent who can work with your schedule. If your schedule only allows you to see homes on evenings and weekends, you won’t go very far with an agent who only works days.

Ask any prospective real estate agent what they’ll do to sell your home. It sounds elementary, but not all agents work the same way. Some brokers will advertise your property and spread the word to other agents they know. Others will just add your property to the Multiple Listing Service and wait for inquiries. The bottom guiding line is, “The more proactive your Realtor, the better.”

A middleman to listing your home

I have just run across an article about a strange new website called The idea behind hungry agents is that if your are looking to sell you list your home on this site and Realtors are supposed to bid on your listing. With the number of Realtors in most markets I am not sure why this service would be necessary but anyway here is an article that talks about the service.

Home sellers caught in the current ebb in real estate sales can't help getting a bit discouraged after putting up a "for sale" sign, only to see few prospects look at their property. It's a trend that has vexed Realtors who've been fighting a vicious circle that has seen interest rates go up while home sales go down. About the only way to sweeten a deal without chopping the purchase price would be to negotiate the 6 percent to 7 percent commission paid to real estate agents.
An online service,, offers home sellers the option of doing just that, often netting home sellers a commission rate as low as 3 or 4 percent.

This is in fact a new service that has not been offered online before.

"It's been good for my business," Wiszowaty said. "I think it's been great for homeowners, because they can find some competitive rates with good companies that are out there," he said.
He suggested HungryAgents has been a godsend for a lot of homeowners who are desperate to sell their home but are either unwilling or unable to pay prevailing commission rates. He scoffs at suggestions that a participating agent may unwittingly label his realty a discount broker.
Wiszowaty points out that preliminary negotiations between agent and seller are done online and are completely anonymous until the seller decides he wants to make contact with an agent. The number of agents is pared down to three, who then meet with the seller in person and bid for the listing by offering bare-bones commission rates and a description of what services will be provided.

After a home seller signs with a Realtor and the home is sold, HungryAgents collects a $795 fee from the seller, irrespective of the sale price of the home. Wiszowaty dispels any notion that Realtors working in his office — or at competing real estate agencies, for that matter — might resent participating agents for raking in sales generated by their acceptance of reduced commission rates.

"Nobody in the multiple listing service knows that a listing is taken by a HungryAgents Realtor," Wiszowaty said.

The only place the amount of the final commission appears, he said, would be on a closing statement.

Wiszowaty said there is no stigma attached to agents who accept lesser-priced commissions. He said commission rates are kept confidential to preclude other Realtors from refusing to show listings obtained through HungryAgents.

Vince Rizzo, a real estate broker and a co-founder of the St. Louis-based company, emphasizes that HungryAgents is not a real estate agency. Rather, he explained, it's sort of an online "dating service."

He expressed optimism about the future of the company after launching the company's Web site about a year ago. Even with limited advertising in Chicago, Indianapolis and Kansas City, the results, Rizzo noted, surpassed company expectations. "They really weren't expecting to be in all 50 states for a least a couple of years," he said. "They bypassed that goal in about six months."

Rizzo also brushed aside suggestions that participating Realtors jeopardize their operations by accepting bargain-basement commission rates.

"If you're an agent, you're not going to put a sign in your window that suggests you're selling homes at 3 or 4 percent" commission, Rizzo noted.

So now that you see how this system works it seems that there are people willing to let a company charge them $750 to get into the middle of a regular early part of the real estate tranaction process.