By ANDREW JEFFERY

This post first appeared on Minyanville.

As a growing number of economists, pundits and real-estate professionals assure us the housing market’s worst days are over, prospective home buyers need a trusted advocate to make sure they don’t end up on the wrong side of someone else’s trade.

More often than not, that person will come in the form of a real-estate professional working on the buyer’s behalf and earning a commission for their trouble. Below are 5 simple questions you can ask to gauge whether a given candidate is looking out for your best interests – or his or her own.

But first, a word on terminology.

The terms “agent,” “broker” and “realtor” are often thrown around interchangeably. This isn’t exactly right. While laws differ from state to state, acquiring a broker’s license typically requires a series of courses on real estate practices, principals, finance, law, appraisal and the escrow process. A broker can use his license to form a brokerage, and the company can then perform services as a licensed entity.

In many states (like California) a licensed broker can not only conduct real estate transactions, but earn commissions for arranging mortgages and other types of real estate-related loans. For this reason, a brokers license offers the holder huge potential earnings power.

An agent is a step below a broker. While requiring a license, an agent is normally treated as an employee of the broker and thus the broker is responsible for the actions of the agents under his charge. If an agent screws up, his reputation (and license) as well as his broker’s is on the line. Agents can typically conduct the same transactions as a broker, but must do so under the supervision of their boss.

Finally, the term “Realtor” is used to specifically identify a real estate broker or agent who is a member of the National Association of Realtors, or NAR. The NAR is a nationwide trade group that collects member dues, lobbies in Washington and runs marketing campaigns urging Americans to buy homes. The NAR is conspicuous in its role as national housing cheerleader, as it’s chief economist Lawrence Yun has been predicting an imminent bottom in prices since early 2006.

1. Is it a good time to buy?

Of any question a buyer is likely to ask his broker (or agent), this may be the first. And the most important. The answer itself isn’t nearly as important as how the broker responds.

Any broker that says definitely that yes, this is a great time to buy, should be eyed with skepticism. Without knowing a buyer’s specific circumstances, understanding localized market trends and the underlying value of a specific home, saying it is a great time to buy is a sales pitch, pure and simple.

Brokers will often cite low interest rates, high levels of affordability, low replacement costs and home prices that have fallen precipitously from their peaks as reasons its never been a better time to buy. But ask yourself, all those conditions were true six months ago — was it a great time to buy then?

The proper response to this question from a responsible broker is to answer the question with a question, or questions. How much money have you saved? How long do you plan on owning the home? How much money do you make? How much is your other debt service? What are your contingencies if you lose your job? How is your credit? What are your other motivations for wanting to buy?

Only armed with answers to these and other questions can a broker — or a buyer for that matter — determine whether its the right time to buy.

2. Are home prices near a bottom?

As with the previous question, the answer should be in the form of a question. Where and when are you looking to buy? Do you want a move in ready home or one that needs some work?

While there is no crystal ball as to the direction of home prices in the near or long term, a broker should have a clear understanding of the dynamics effecting his or her local market. I hear ad nauseum here in California that home prices are stabilizing because demand is up, prices are down and homes are receiving multiple bids. But those are external symptoms of market machinations underneath the surface.

Foreclosure moratoriums put in place late last year limited the number of bank owned homes dumped onto the market. This constricted supply, and coupled with tax incentives, low interest rates and aggressive marketing from the NAR, led to a situation where in some areas, for some homes, demand outweighs supply. But that doesn’t mean the situation will persist — in fact, the smart money is betting it won’t.

This dynamic is far from ubiquitous, as most high end markets remain illiquid with prices tumbling into an apparent vacuum.

Real estate is, and will always remain, local.

3. How do you determine which homes to show me?

Not to beat a dead horse, but this question should be met with yet another series of questions. What size home are you looking for? Are schools important to you? How close do you want to be to public transportation? Do you care about being within walking distance to shops and restaurants? What style of home do you like? Do you want a yard?

A good real estate broker should be a blank slate, absorbing your preferences, desires and reasons for buying without injecting his own bias. Just because your agent loves a certain home and thinks its a great buy, doesn’t mean it fits your criteria. Don’t be afraid to tell your broker that you don’t like a particular home.

Brokers should show you a variety of homes, below, within and above your price range, to give you a sense of what is out there on the market. With prices still coming down in most areas, you may walk inside your dream house and decide its worth it to keep renting — and saving — for another year until prices fall to something you can afford.

Until you feel comfortable your broker is showing you everything that may fit your criteria, perform your own searches on the myriad free websites out there. Redfin.com is a great resource for the metropolitan areas it covers, while Trulia.com, ziprealty.com and even Realtor.com have excellent free search features.

4. What are my financing options? How much can I afford?

While real-estate brokers are often legally allowed to arrange loans, more often than not its a dicey legal proposition for the broker to sell you a house as well as a mortgage.

Nevertheless, brokers should be well-versed in available financing, rates, qualification requirements and whether sellers require a mortgage pre-approval letter to accompany any offer (these days, most do). If your broker doesn’t know the answer to a certain question, that’s OK as the rules change almost daily, but he should actively pursue the answer and report his findings back without too much delay.

Shopping around for the best loan terms can be a time consuming and confusing process, but it must be done. Gone are the days where Wells Fargo (WFC) always gave you the best rate, or your buddy down at Chase (JPM) could get you a great deal. Keep in mind most loans these days are originated to Fannie Mae (FNM) and Freddie Mac (FRE) guidelines, which means most big lenders offer similar loan programs.

All things being equal, choose a lender you feel you can trust (not just the one offering you the best deal) and always have a backup.

Lastly, never trust a broker to “tell” you how much you can afford. This decision, especially in an environment where home prices are likely to fall for the foreseeable future, should be one each buyer must make for himself.

Plans change, life doesn’t always follow the path you hope it does. Being conservative in what you can afford, leaving a cushion and planning for the unexpected are paramount in today’s uncertain market conditions.

5. Provide me with examples of a few closings you are the most proud of over the past year.

This question gives your broker a bit of an opening to sell himself, and will go along way towards helping figure out whose side he is actually on. If your broker launches into a a story about this cute young couple he helped get into the house of their dreams, move along, cute young couples rarely make savvy home buying decisions and are easy prey for aggressive brokers. Also pass if you hear things like, “I found this great house right when it came on the market, we jumped at it and got in before the other buyers had a chance to bid.”

Sellers, by and large, are still unrealistic about how much they can sell their homes for. This means that when houses come out onto the market, the asking price is nearly always above where it will actually go for. Be patient, make your broker work for his money.

Although there are situations where multiple bids will come in from prospective buyers, chances are this isn’t a house you want to buy. Most of this sort of activity is going on in areas with high levels of foreclosures. Now that the moratoria are lifted, banks will start flooding the market again come next month. All that great news about limited supply will become ancient history as prices plunge once again. The house itself may be great, but just because homes are “cheap,” doesn’t mean they won’t get cheaper.

A good response is one where a broker tells you a story of a buyer he worked with for months, go to know a few neighborhoods that fit all the pertinent criteria, and waited for the right house to come on the market. Many sellers will list their house at a “hopeful” price for the first 30 or 45 days, then drop it down to something more reasonable. Rarely will a house sold in the first couple weeks be a “steal” for the buyer.

Your broker should stress that patience, research and shrewd negotiating got his client a great home at a great price.

To be sure, there are other questions to ask of a prospective broker, but this is a good start. Finding a broker should be treated like a job interview, after all, even though the commission may not be coming out of your pocket, you, as the buyer, end up paying one way or another. Make sure your broker is worth his salt.

By ANDREW JEFFERY

This post first appeared on Minyanville.

There isn’t an economic forecaster or media pundit alive who isn’t angling to be the first to (correctly) call the bottom in housing. Many have tried; they all have failed.

But what happens when one’s right?

At some point in the future, broad home price indicators will cease to slide, then stabilize and even begin to move back up. When, and in what shape that trajectory will be, of course remains a mystery. As I’ve written in the past, the eventual recovery in housing will be a prolonged, localized event. The rising tide will not lift all boats, as the fundamentals of the old cliché “location, location, location” will be truer than ever.

And although predicting the date of this event is a fool’s errand, savvy home buyers will be ready to jump in ahead of those who remain in their shells long after the best bargains are behind them.

Here are 5 simple things you, the future home buyer can do now, without putting your nest egg at risk, to be ready for the coming opportunities in real estate:

1. Have patience.

There will be false bottoms, dead-cat bounces and treacherous pitfalls on the path to a recovery in real estate. Be patient. Don’t believe the hype – a couple months of strong sales numbers don’t foretell and imminent rebound in prices. Let the beginnings of a trend develop before you begin your home search in earnest. Future appreciation will come slowly, as tightened mortgage guidelines and fear of the collapse we’re now experiencing will not be soon forgotten.

2. Find a market, do your homework.

Had your eye on that classic Victorian around the corner from your kids’ future grade school, and hoping the elderly couple living there knock off just in time for you to swoop in at the estate sale? Expand your search.

Pick a couple of areas you could be happy in – look in multiple cities even. By focusing too narrowly on a single street, or even a single neighborhood, you could be missing out on what could be a fantastic opportunity on the other side of town. Don’t compromise, but play with your list of priorities to give yourself the most “exposure” to localized markets that may become increasingly attractive.

Tour the schools, scope the neighbors – hang around on Halloween to see who gets egged. RealtyTrac.com is a great resource for watching foreclosure activity all over the country and in your backyard. Their free site provides a great overview of cities and neighborhoods, but you have to pay for the house-by-house detail. Unfamiliar with an area? Use RealtyTrac to eyeball major neighborhood dividers (railroad tracks, highways, main roads, etc.) and examine foreclosure activity on either side.

3. Find a broker and start a housing “tracker”.

Real estate brokers can be a valuable tool in your home search – use them.

An aside: The commonly used term “realtor” denotes an association with the National Association of Realtors, or NAR, the lobbyists who have been predicting a bottom since the downturn began over 3 years ago. Tread carefully with anyone proudly bearing an NAR pin. Contrary to what many tell you, you don’t need to be a realtor to have access to MLS. But I digress.

Today, with transactions down in all but the most distressed areas, any broker worth his (or her) salt should be out prospecting for future clients, not proclaiming the time to buy is now. Collect referrals, test drive a broker or 2 and find one you’re comfortable with. Your broker should not just understand the local market but be up to speed on the macro-level events affecting the real estate and mortgage markets. Ask him what a CDO (collateralized debt obligation) is – watch for a flinch. For better or for worse, understanding the state of Wall Street is as important these days as understanding the state of your street.

Ask your broker to help you develop a “housing tracker,” a simple tool that allows you to watch homes as they come on the market to see when and for how much they sell. Watching the life cycle of homes in a given market will give you a sense of how desperate sellers are, when asking prices drop and what concessions buyers are able to receive from sellers. As concessions begin to swing in favor of the sellers, the bottom may be nigh.

4. Start saving money.

If there’s one sure bet in the housing market, it’s that mortgage requirements will remain tight for the foreseeable future. Banks — Citigroup (C), Bank of America (BAC), JP Morgan (JPM) and Wells Fargo (WFC) being the obvious examples — are hoarding cash and reticent to lend even to the most qualified buyers. Unless a loan falls within guidelines set by Fannie Mae (FNM) and Freddie Mac (FRE), rates remain elevated and approvals elusive. This isn’t likely to change any time soon.

Save for a down payment and be able to point to liquid reserves (i.e. money in the bank) during the application process. Think about this as the lender’s cushion should you fall on hard times – and banks will need all the cushion they can get.

5. Think of your home as an investment, not just a place to raise your kids.

This may seem counter-intuitive, since speculation on housing prices played a huge role in creating the recent housing bubble. But speculating and investing are not the same thing.

A home, in addition to being a place to raise kids, is a massive financial obligation. Becoming emotionally attached to a house, rationalizing the financial realities away and hoping paychecks keep coming simply isn’t a viable home-buying strategy. As un-romantic as it may be, treat a home as you would a stock: Examine it, turn it upside down, run the numbers. Love it every day you’re there, but financial responsibility and emotional attachment don’t need to be mutually exclusive.

The time to buy may not be today — and it may not be tomorrow — but we’ll be closer to that day tomorrow than we are today. However, just as prices overshot to the upside, they’ll likely overshoot to the downside – be ready when that day comes.

Preparation, not hoping, will be the key to taking advantage of the opportunities that will present themselves on the other side of this mess.

By RYAN TAYLOR

Friends are people you can trust. They will come pick you up when your car breaks down. They are there to pick you up when you are down and there to celebrate when something goes right. Friends are the most valuable thing you have.

Friends do not try to hurt, deceive or manipulate you. (Bernie Madoff is not your friend).

If you bought a house in 2008, most likely your Realtor is not your friend. Almost every single person who bought a house in 2008 now owns an asset that is worth less than what they paid.

Did your Realtor at least tell you that you were making a poor short-term financial decision? Probably not, because he or she is not obligated to do so.

Realtors are not motivated to help make you a good financial decision; they are motivated to create a transaction and earn fees. If President Obama is outraged over Wall Street compensation packages then you should be outraged over Realtor commissions.

And while Wall Street may not have much of a choice about their bonuses for the foreseeable future, there is something you can do as a potential home buyer to protect yourself from making a big mistake when making the biggest purchase of your life.

Ask the right questions and demand the right answers.

Here a few questions you should ask your Realtor and the answers that are adequate and answers that are concerning:

With economic conditions continuing to deteriorate, why do you think this is the right time to buy, as opposed to 6 months from now?

Wrong Answer: Interest rates are at historical lows and sales are up, so we are near the bottom of the market.

Right Answer: Property values are not likely to rise in the next six months and in most cases it is not worth the risk to buy a house now as opposed to six months from now. However, if you have been waiting for this particular house to come on the market for a few months because it is in a well-maintained neighborhood with good schools and an abnormally large lot, it may be a good time to make an offer that fits comfortably within your budget.

What is the value trend over the last three months for properties like the one I am looking at?

Wrong Answer: Sales are up more than 100% year over year. With the increased demand, values are going to be on the rise or are already on the rise.

Right Answer: Allow me to find you 3 comparable sales from the last two months that will show you the current market trend. In addition, I will find you three comparable listings that also give you an indication of what others are asking for. Please realize that listings are very negotiable and so do not necessarily represent the value of the homes they are attached to.

When you are prospecting for homes you want to show me, how do you determine what to show me and what not to show me?

Wrong Answer: I only look for properties that have been listed within the last 30 days. Anything that has been on the market for more than 30 days must have some problem that makes it very undesirable. I also do not look for REOs as they have been neglected and are frequently sold “as-is”.

Right Answer: I apply the criteria you provided me and look at everything that is listed in the school district and city you are interested in. Personally, I like to show some homes that have been listed for a while because I know they are not generating as much interest as some of the new properties. This way we can avoid bidding wars and potentially find a truly motivated seller.

In addition, I enjoy showing REOs because I know banks continue to be strapped for cash and they are willing to negotiate over everything from closing cost incentives to repairs. Finally, I do show short sales but I realize that most end up becoming REO properties, and you as a buyer will most likely get a better deal on a home when it is REO rather than a short sale.

Please provide me with a few closings you are most proud of over the last year that you believe were really good deals for the buyers?

Wrong Answer: I got a great deal for a couple in October where they got a $5,000 closing cost credit. I also helped one of my friends get a home that they bought for $35,000 below list.

Right Answer: There are a few deals I am proud of and I will put together a report for you detailing the price the buyer paid, the closing cost incentives granted by the seller and what their home is worth now. Furthermore, I will have an independent valuation firm run values on these homes so you know you can have an unbiased opinion of value.

If you receive the right answer on your questions, you may just have a friend in the real estate business.

By AUSTIN NELSON

Existing home sales fell again in October, reversing gains seen in September. The National Association of Realtors, or NAR, released October existing home sales data today, which show decreases in units sold as well as median sale price across the country. The annual price decline was the worst on record, continuing the worst housing slump since  the Great Depression.

Nationally, existing home sales fell a seasonally adjusted 3.1% month-over-month, representing a 1.6% drop from a year ago. In September, sales improved from last fall’s atrocious levels – data the NAR pointed to as a sign of stabilization in the housing market. This assessment appears to have been premature. October’s decline in sales is more in line with the current economic climate of rising unemployment and severe home equity losses.

Sales were down throughout the country:

• Northeast: -1.2% m/m, -9.8% y/y
• Midwest: -6.0% m/m, -9.1% y/y
• South: -3.2% m/m, -10.2% y/y
• West: -1.6% m/m, 37.5% y/y

A few of these numbers are worth singling out.

First, the Midwest was hardest hit, evidencing the fallout from the troubles with the automakers. Second, sales in the West fell, following improvment in September. Again, the NAR had pointed to last month’s gain as an indicator of market health, claiming the West’s markets were showing renewed strength after being the hardest hit to date. The decrease last month shows that this “renewed strength” is typical NAR spin: Even drastic reductions in home prices could not stimulate sales growth in the region.

The figures released on median home sale prices are perhaps even more revealing as to the current state of the housing market.

Nationwide, home prices tumbled 4.2% month-over-month. The largest drop was seen in the West, which saw a dramatic 9.3% decrease. This decline came in the context of a market that had already seen 25% lower home prices than the peak in 2006. Markets in regions that have thus far held up better should expect continued deterioration if they follow a similar trend.

From a “rosier” perspective, this large drop in median price was due at least in part to the paralysis in credit markets over the last two months. The restriction of credit to the private mortgage market dramatically reduced the availability of jumbo loans – which are not backed by the government – preventing buyer’s from bidding on expensive homes.

As a result, the mix of homes sold in October was likely skewed towards the cheaper properties that are available for purchase using loans offered by Fannie Mae, Freddie Mac and the FHA. This concentration of lower priced homes helped push down the broader, median home price data reported by the NAR. As credit markets improve, albeit slowly, this effect should ease pressure on the broad indicators.

Rosier perspective aside, further nationwide declines in home prices and sales should be expected, as  economic conditions continue to erode. However, as the earth-shattering financial events of the past few months play themselves out, it will be important to watch the West as a bellwether of national markets.

The West has led the way in declines thus far, so it is reasonable to look to this area as a proxy for how economic hardships will affect other regional housing markets. Furthermore, as the West has seen the lion’s share of the market pain thus far, signs of true stabilization should appear there first.

Finally, it is important to note that regional economic numbers can conceal even the largest of local trends. Within local Western real estate markets, conditions are widely varied, with some markets only beginning to decline and others beginning to show truly renewed strength.

Only time, and feverishly detailed scrutiny will allow effective market analysis in these unpredictable and volatile times.

This post first appeared on Minyanville.

That glitzy McMansion you’ve always wanted may finally be within reach.

Or not.

If nearly 3 years of home price declines, historically low interest rates and a relentless media barrage of half-truths from the National Association of Realtors haven’t been able to stabilize home prices, it’s doubtful a gimmicky used-car-style sales event will do the trick.

Coldwell Banker, one of the nation’s largest real-estate brokerages, launched a nationwide campaign last Friday to boost the flagging housing market. The 10-day sales event aims to close the gap between buyers and sellers by offering up to a 10% discount on listed homes for, you guessed it, 10 days.

This selling bonanza was hatched in response to a recent survey of over 3000 of the firm’s real estate agents, which found that a majority feel listing prices are too high to attract buyers. The survey also showed almost 80% of the agents believe more appropriately priced homes are garnering more attention; apparently, you need a license to know people like to pay less for a house, not more.

Coldwell Banker’s president and CEO, Jim Gillespie, is confident the housing market may finally be nearing a bottom. He told our friends at Marketwatch: “Despite the difficult headlines regarding our overall economy, the residential real estate market has been showing several positive signs over recent months that could be signaling a tipping point.”

It’s unclear whether continuing price declines, historically high levels of inventory, tightening lending requirements or frozen credit markets are the “positive signs” he’s referring to.

Gillespie also believes the unprecedented sales event will encourage buyers to jump back into the market: “Because of higher inventory, buyers have more homes to choose from and they can take advantage of near historically low interest rates and affordability levels that are the best they have been in years.”

Yes, affordability levels are the best they have been in years: Much better than when the only way to get into a house was to lie about your income and take out an Option ARM with a 1% teaser rate.

About this time last year, homebuilder Hovnanian (HOV) tried a nationwide fire sale to flush out its bloated inventory. More recently, Lennar (LEN), Centex (CTX), and DR Horton (DHI) tried a similar approach with both land and homes – to no avail. The fundamental forces pushing housing prices down will persist, regardless of futile ploys aimed at tricking buyers into paying more than they should for homes.

To be clear: Being negative on the housing market isn’t exactly a contrarian position. Therefore, anyone claiming it’s a great time to buy – like Coldwell Banker and tens of thousands of real estate professionals around the country — clearly have their own reasons for doing so.

Real estate agents get paid to close transactions; whether their client receives (or pays) a fair price is a non-issue.

Commission expenses are borne by sellers, typically to the tune of 6% of the sale price. In California, where the median home price is still over $350,000, that’s $20,000 out of the pocket of someone who’s already seen his home’s value evaporate before his eyes.

The selling agent usually splits the commission with the buyer’s agent, a pay structure that gives both sides an incentive to not only focus exclusively on closing deals, but also to sell homes for as much as possible.

Coldwell Banker correctly asserts that many sellers have unrealistic expectations about their homes’ final selling price, and as a result keep asking for prices too high for too long. Their cute little sales event, however, is aimed more at earning commissions for their struggling agents than advancing true price discovery in the troubled housing market. If the firm truly had the best interests of homeowners in mind, agents would volunteer to take a pay cut to ease their troubled clients’ burden.

Gillespie, Coldwell’s CEO, claims the event will “help move the US real estate market in the right direction.” He’s right – home prices must continue to fall. Simple economics, the interplay between supply and demand, is driving most markets, as tens of homes sit on the market for every one qualified buyer. Until this overhead supply is worked through, prices will remain under pressure.

In some of the most depressed areas – Las Vegas, the California Central Valley, Florida and Phoenix – homes have reached or surpassed traditional levels of affordability. Unfortunately, there’s more to buying a home than just being able to make the monthly payments. With down payment requirements returning to pre-bubble levels, low interest rates are almost a moot point.

There just isn’t any economic rationale for buying if home values keep sliding.

Even if a borrower can afford the monthly payments, home price declines wipe out the tax benefits of writing off mortgage payments and risk putting the new homeowner in the paralyzing position of owing more than his home is worth. Buying a home today is almost like buying a new car: You’re upside-down as soon as you’re handed the keys.

Until there’s real, verifiable evidence that home prices have stabilized, buying a home remains a dangerous financial proposition. This is true in every market, not just the ones that make the headlines for mind-boggling foreclosure rates.

Renting is still the far more fiscally responsible option. Staring into the teeth of a recession, families should be making choices in the best interest of their financial security, not for bragging rights at cocktail parties.