In this report
Overview
Cut energy costs
Shore up insurance
Should you refinance?
Buy, sell or stay put

Buying, selling, or staying put

Protect yourself in today's rocky real-estate market

Last reviewed: May 2009

Tips for sellers

Price it right

Because buyers have lots of homes to choose from these days, it's all about price. A home sells most quickly if it's put on the market at a price that's just a bit lower than the prices of similar homes in the area.

"You have to stay more current than in the past, so your broker should show you the prices of comparable homes that have gone into escrow in the past month, not three months ago," says John Veneris, a real-estate broker in Downers Grove, Ill. And if you don't get an offer in four to six weeks, drop the price 4 to 6 percent, he adds.

Think round numbers

Today about 80 percent of people buying and selling homes get information by searching online multiple-listing sites such as Realtor.com, which is run by the National Association of Realtors. To conduct a search on that site, buyers specify a price range using round numbers. So if you price your home at $350,000, people shopping online for houses from $300,000 to $350,000 will see it and so will those looking for prices between $350,000 and $400,000, says Ron Phipps, a broker in Warwick, R.I.

Pick the right improvements

You might want to update your kitchen or a bathroom for your own comfort, but don't expect to recoup the project's whole cost when you sell your home. In the current market, you might get the best return if you spruce up the outside of your home by adding a wood deck, energy-efficient windows, or new siding, according to a nationwide survey of real-estate professionals by Remodeling magazine.

Consider the type of listing

If you've decided to use a real-estate broker, there are two common ways to list your home, and that decision can affect how much money you'll eventually have when you close the deal. You can designate your home as an exclusive agency listing, which means you have one broker but can sell it yourself and save the commission. If you opt for an exclusive right-to-sell listing, only the broker you designate can offer your home during the listing term (often six to 12 months) and you can't sell it yourself.

Interview more than one agent

Ask around for recommendations and meet with several possible candidates. They should clearly explain how they would market your property and describe how they handle open houses and newspaper and Internet advertising. Ask whether there will be any advertising costs, transaction fees, or other incidentals that you will be expected to pay. Transaction fees, in particular, are negotiable. After you select an agent, make sure that the marketing plan is part of the listing agreement so that if the plan is not followed, you will be able to cancel the listing and take your business to another agent.

Tips for buyers

Get preapproved for a mortgage

Preapproval was always a smart move, but now it is a must. Check several lenders, including commercial banks, mortgage companies, and credit unions. Knowing only what your monthly payment or interest rate will be is not enough. Ask each lender to estimate what you'll pay over the life of the mortgage for the same loan amount, loan term, and type of loan so that you can compare properly.

Also get an estimate of the closing costs and all of the additional fees you'll owe, including loan origination or under¬writing fees, broker fees, and transaction and settlement costs. Many of those fees are negotiable. Ask potential lenders whether they will waive or reduce fees or agree to a lower interest rate.

Check your credit

With foreclosures rising, lenders are examining would-be borrowers far more closely. Your credit score has become a bigger factor in the loan rate you get.

Every 20-point drop in a FICO score can raise your interest rate. For example, if you had recently applied for a $300,000, 30-year fixed loan and your score was 721, you would have received an interest rate of 4.76 percent, for a monthly payment of $1,567. But if your FICO score was 625, your interest rate would have been 6.75 percent and your monthly payment would have been $1,911. Over the 30-year life of the loan, that would be a difference of $123,796.

Don't forget the other costs

Before you make an offer, find out what the current homeowner pays for taxes, heating, cooling, and utilities. Also call your homeowners-insurance company for the potential cost to insure the new home. Home insurers have tightened their belts too.

When buying foreclosures

Though there are a lot of bank-owned properties available now, trying to buy one can be risky. Here's what you need to know:

Skip listings that charge a fee

Most foreclosure Web sites charge for their property listings. But you can get information on foreclosed homes free of charge from local agents.

Banks might put their foreclosed homes up for bidding at auction or simply turn them over to a real-estate broker. If the property has been on the market for less than 30 days, lenders are usually looking for full-price offers. After 30 days, they might be willing to accept a lower price. After 60 days offer even less.

Pay for a detailed home inspection

That is always a good idea when you're buying a home, but especially when you're buying a foreclosed home. Vandals might have stripped fixtures and appliances. What's more, the utilities have probably been shut off, making it impossible to gauge shower pressure or test for leaky pipes. If that's a concern, try to negotiate to have the utilities turned on for inspection before you close on the home. An inspection usually runs from $250 to $400 but can save you much more.

Beware: A "sale" might not be final

Don't rush out to buy furniture. Some states have a redemption period that lets the original homeowner satisfy his or her debt and take back the foreclosed home during a specified period after a foreclosure.

Consider title insurance

Even if you aren't getting a mortgage, you might want to buy title insurance as protection against liens that weren't disclosed or discovered. It also prevents someone from making a successful claim on the home after it's sold, such as an ex-spouse of the previous owner.

Have patience

Banks might take 60 days or more to decide whether to accept your offer on a foreclosed home. "We see a number of these deals fall through because buyers don't want to wait," says John Anderson, a real-estate agent in Minneapolis.

Tips for staying put

Don't over-remodel

If you can afford to renovate, you'll find that there are new rules for remodeling.

Contractors are more available than usual, so they are more willing to negotiate price and can probably give your project their full attention. But that means restraint on your part is even more important.

Homeowners can expect to get back less of the money they invest in renovations than they would have gotten just a few years ago, according to a survey by Remodeling magazine. In 2005, 10 of 22 projects the magazine listed returned more than 90 cents on the dollar. In the past two years, no project did that well.

Instead, it's better to think of remodeling projects as an investment in lifestyle rather than a money-making investment.