It seems that almost every day for the last few weeks, the news about the chaos created by the sub prime market mess has been more and more despairing.

How bad is it? Well, thank goodness it isn’t as bad as in the 80’s when interest rates shot up to the mid to high teens; but, there is no question that getting the funds to purchase a home has gotten more difficult. Quickly receding are the days when a bank or Mortgage Company would lend 100%. Even 5% and 10% down loans are more difficult to qualify for and those that do qualify have to pay a premium interest rate. Let’s face it, the more risk or perceived risk that a lender sees the higher the interest rate will be and the more stringent underwriting criteria the purchaser will have to meet.

SELLERS: If you are a home seller, you will find that the pool of qualified buyers is shrinking because buyers may now qualify for less than they qualified for just a few short months ago. To the seller who has been digging in his or her heels regarding the asking price of their home, it’s time for a reality check. Do you want to be stubborn about what you think your house is "worth" or do you actually want to sell it? Don’t get caught up in that madness and pay the price of having to settle for a whole lot less when months go by with no offers and desperation sets in. And, if you’re a For Sale By Owner seller, don’t underestimate how buyers are going to lowball you even more than buyers have in the past.

BUYERS: If you are a home buyer, it’s time to fish or cut bait. Don’t make the mistake of thinking that the buyer’s market is going to favor you interminably. It’s true that buyers do somewhat have the upper hand when it comes time to negotiate price and terms, but, if you’re playing the waiting game, hoping that the asking price of the home or homes you’re looking at will drop more, you risk losing your gains by quite possibly having to pay a higher interest rate and larger down payment by the time you get off the fence. In other words, don’t try to time the market. It’s much too volatile to take that risk.

Since foreclosed homes that go to the auction block cannot be inspected prior to sale and there is no admonition or disclosure by the auctioneer as to any hidden debt, the investor can mitigate the anxiety about taking this type of risk by performing as much due diligence as possible. 

This means checking courthouse records for evidence of any other liens,and finding out how much equity there is in the property.  It would also serve you well to drive by the property to perform an inspection of the exterior.  CAUTION:  You may encounter the homeowner who may be none too happy to see you and  you could be considered to be trespassing.  Do this at your own risk.

If you do make a visit to the property, when looking at the exterior, look for signs of roof damage or aging shingles, look at the siding, gutters, soffits, and the heat pump/compressor or oil tank., observe for overgrown grass, weeds, and general neglect.   These are all signs and indicators of problems that could possibly exist inside the home as well.  Since homeowners facing foreclosure are usually preserving all their cash just to make the mortgage payment, you will often find examples of this kind of deferred maintenance. Estimate what you think it would cost to replace the HVAC, roof, plumbing, etc. and then factor that into your decision to make an offer at the auction.