That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.  The 30-year fixed rate before the Federal Reserve bailout plan was 6%.  When the government bailout plan went into effect, consumers saw interest rates fall to historical lows below 4%.  Experts believe the end of the bailout plan on March 31 will spark a rise in mortgage interest rates back to levels before the bailout plan went into effect.

Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Christopher J. Mayer, a professor of finance and economics at Columbia Business School.

Mortgage Calculator

The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.

“We’ve gotten spoiled by the idea that interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.”

Free Report: 6 Things You Must Know Before You Buy

For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.

No one expects rates to return to anything resembling 1981 levels. Still, for much of Wall Street, the question is not whether rates will go up, but rather by how much.

Some firms, like Morgan Stanley, are predicting that rates could rise by a percentage point and a half by the end of the year. Others, like JPMorgan Chase are forecasting a more modest half-point jump.

But the consensus is clear, according to Terrence M. Belton, global head of fixed-income strategy for J. P. Morgan Securities. “Everyone knows that rates will eventually go higher,” he said.

Source: New York Times

You’d be surprised how common that question is. Most people barely understand the process involved in buying real estate. Few know what agency representation and fiduciary duty is. When it comes to buying real estate, most buyers spend more time deciding what to eat for dinner than they do thinking about choosing a real estate agent to represent their best interests in the transaction. It’s sad but true; they’ll spend more time deciding on Chinese or Mexican food, than who’s going to look out for them when they spend half a million dollars. Question: Who does the agent at an open house represent?

Why Do You Need Representation?

Did you know that if you walked into an open house, fell in love with it, and told the agent you wanted to buy it, that agent represents the seller. That agent has NO fiduciary duty to represent you or your interests. While it’s true both state laws and the National Association of Realtors’ Code of Ethics requires that all Realtors treat all parties fairly, there’s a big difference between fair treatment and fiduciary duty. That big difference can be subtle and could cost you tens of thousands of dollars.

How? Let’s go back to that home you fell in love with at the open house. You have the agent at the home write an offer for you. The same agent that represents the seller. As that agent completes the purchase contract, he comes to a section regarding assessments and who pays it if there are any. You aren’t aware that there’s a $20,000 assessment for every house on that street for upgrading the sewer lines. That agent representing the seller will naturally select the buyer pay this assessment. While that agent treated you fairly, his fiduciary duty was to his seller. On the other hand, if you had an agent representing you, your agent would automatically stipulate that the seller pay this assessment. That subtle difference of not having representation just cost you $20,000. That’s just one example. Every real estate transaction is different and you never know what to expect. In fact, I always prepare my clients to "expect the unexpected."

How To Select An Agent To Represent You

Hopefully you now understand the importance of being represented in all real estate transactions. It also makes no sense not to have representation since your agent usually costs you nothing. In most residential real estate transactions, the buyer’s agent is paid from the commissions paid by the seller. They work for you, but paid by the seller. While it’s important to have representation, it’s more important to select the right agent. So what do you ask?

10 Questions To Ask

1. How much experience do they have? How long have they been in the business? While not true 100% of the time, competence usually comes through experience. Experience and knowledge is everything when it comes to representation. Question: What do you call a med school student that graduates dead last in his class? Answer: A doctor. Assuming there’s no difference between all real estate agents is the same as saying all doctors are equal.

2. Do they work alone or do they have a team? Lone agents are stretched for time, hard to reach and are a "jack of all trades, master of none". An agent that has carefully assembled a team of experts for each phase of the transaction, is the one you want working for you. There are so many facets to every real estate transaction, having a team comprised of specialists for each phase will reduce your anxiety and save you time and money. On top of that, having more people looking out for you means you get to the great deals before other buyers. That lone agent barely has time to return your calls, let alone be on top of the great deals when they come available.

3. How many homes do they sell each year? This goes hand in hand with their experience. Would you rather have an agent that sold 4 houses last year (the national average) or one that does 30 or more a year? Don’t worry about an agent selling 30+ homes a year being too busy for you. If they answered question 2 correctly, they’re set up to handle the volume without sacrificing the service.

4. Is real estate their ONLY occupation? Unlike doctors, lawyers and accountants, there are a lot of part time real estate agents. Would you go to a doctor that had a full time job doing something else? Why would you have someone that "dabbles in selling real estate" represent you in buying a home that could cost you a million dollars?

5. Are they a real estate agent or a Realtor? They are not the same. A real estate agent is someone who satisfied the licensing requirements of their state and passed a licensing exam. A Realtor has done that and are members of both local and national associations of real estate agents. Realtors are required to complete professional standards courses on a continuing basis. Membership in these associations also require the member to adhere to stringent ethics and duties to their clients. The public can file complaints against Realtors through local associations for Code of Ethics violations while in the practice of real estate. Violators are sanctioned and membership can be revoked. Without membership, the agent has no access to the local MLS. Without MLS access, the agent is useless to you.

6. Has the agent had any disciplinary actions against them? You can check this through the state’s regulatory agency and the local Realtor association. Complaints usually are on record for life.

7. What technology do they use? Having access to timely information can be the difference in getting the "hot deal" or not getting it. Also, what technology do they use to coordinate the entire team and ensure each member is completely up-to-date with your transaction? Missing just one contingency on a purchase contract could cost you thousands. One of the reasons a well-oiled team is so efficient is due to the technology they employ.

8. What is their best strategy to meet your needs? How do they plan to find you the perfect home at the lowest possible price? What sources for available homes do they know of and have access to? How strong are their negotiating skills? Do they have trusted professionals in related fields that they can refer you to if needed?

9. Can they provide references? Look at the list. Ask if any are related to the agent. You’d be surprised that many agents only get business from family. Those same agents are usually the part time agents. Can you call these references?

10. What are the top 3 things that separate them from the competition? A good agent won’t hesitate for a second to tell you. The two biggest complaints consumers have about Realtors are 1) Poor communication and 2) Doesn’t fight hard enough for them. Other standards you want to look for include honesty and trustworthiness, assertiveness, excellent negotiators, available by phone and email, good communicator, friendly, analytical and able to maintain a good sense of humor under trying circumstances.

If you want to maximize your chances of finding your dream home at the lowest possible price all while maintaining your sanity, do a little homework in the beginning. Most buyers spend the time finding the perfect home on their own. Instead, spend the time finding the perfect agent and let them find you the perfect home.

Hope this helps. Happy house hunting!

Elliot Lau

1.  Get yourself financially prepared.  For the first time buyer, this may be the single largest purchase.  Evaluate your financial situation and create a budget.  This will determine how much mortgage payment you can afford. Pay down debt if possible to free up more income for the mortgage payment. 

2. If possible save for a down payment.  A 3% down payment is the minimum and all can be gifted funds. 

3.  Remember  a paper trail is needed for your funds.   Be sure to keep 3 months bank statements to show the funds have been in your account.

2.  Get pre-approved for a mortgage loan.  This will help determine how much of a mortgage payment you can afford.  Don’t forget to include property taxes, maintenance, insurance and mortgage insurance, if applicable, in your payment.

3.  Look around for a real estate agent (See article “10 Things You Need to Know Before You Hire an Agent”

4.  Do not make any sudden changes in your employment or financial condition.  For instance, don’t go out and incur additional debt by buying a new car or furnishings for the house you want to buy, before the purchase is complete.

While the above may not get the house you want, it’s a good start.  Good Luck.

“It’s critical that you make the right decision about who will handle what is probably the single largest financial investment you will ever make.”

Not all real estate agents are the same. If you decide to seek the help of an agent when selling or buying your home, you need some good information before you make any moves.

An agent can cost or save you thousands of dollars

Picking an agent is one of those critical issues that can cost or save you thousands of dollars. There are very specific questions you should be asking to ensure that you get the best representation for your needs. Some agents may prefer that you don’t ask these questions, since the knowledge you’ll gain from their honest answers will give you a very good idea about what outcome you can expect from using them as an agent. And let’s face it – in real estate, as in life – not all things are created equal.

Hiring a real estate agent is just like any hiring process – with you on the boss’s side of the desk. It’s critical that you make the right decision about who will handle what since this is probably the single largest financial investment you will ever make.

1.What makes you different? Why should I list my home with you?

It’s a much tougher real estate market than it was a decade ago. What unique marketing plans and programs does this agent have in place to make sure that your home stands out favorably versus other competing homes? What things does this agent offer you that others don’t to help you sell your home in the least amount of time with the least amount of hassle and for the most amount of money?

2. What is your company’s track record and reputation in the market place?

It may seem like everywhere you look, real estate agents are boasting about being #1 for this or that, or quoting you the number of homes they’ve sold. If you’re like many homeowners, you’ve probably become immune to much of this information. After all, you ask, “Why should I care about how many homes one agent sold over another. The only thing I care about is whether they can sell my home quickly for the most amount of money.”

Well, because you want your home sold fast and for top dollar, you should be asking the agents you interview how many homes they have sold. I’m sure you will agree that success in real estate is selling homes. If one agent is selling a lot of homes where another is selling only a handful, ask yourself why this might be? What things are these two agents doing differently?

You may be surprised to know that many agents sell fewer than 10 homes a year. This volume makes it difficult for them to do full impact marketing on your home, because they can’t raise the money it takes to afford the advertising and special programs to give your home a high profile. Also, at this low level, they probably can’t afford to hire an assistant, which means that they’re running around trying to do all the components of the job themselves. Bottom line, their service to you may suffer.

3. What are your marketing plans for my home?

How much money does this agent spend in advertising the homes s/he lists versus the other agents you are interviewing? In what media (newspaper, magazine, TV etc.) does this agent advertise? What does s/he know about the effectiveness of one medium over the other?

4. What has your company sold in my area?

Agents should bring you a complete listing of both their own, and other comparable sales in your area.

5. Does your Broker control your advertising or do you?

If your agent is not in control of their own advertising, then your home will be competing for advertising space not only with this agent’s other listings, but also with the listings of every other agent in the brokerage.

6. On average, when your listings sell, how close is the selling price to the asking price?

This information is available from the Real Estate Board. Is this agent’s performance higher or lower than the board average? Their performance on this measurement will help you predict how high a price you will get for the sale of your home.

7. On average, how long does it take for your listings to sell?

This information is also available from the Real Estate Board. Does this agent tend to sell faster or slower than the board average? Their performance on this measurement will help you predict how long your home will be on the market before it sells.

8. How many Buyers are you currently working with?

Obviously, the more buyers your agent is working with, the better your chances are of selling your home quickly. It will also impact price because an agent with many buyers can set up an auction-like atmosphere where many buyers bid on your home at the same time. Ask them to describe the system they have for attracting buyers.

9. Do you have a reference list of clients I could contact?

Ask to see this list, and then proceed to spot check some of the names.

10. What happens if I’m not happy with the job you are doing to get my home sold?

Can I cancel my listing contract? Be wary of agents that lock you into a lengthy listing contract where they can get out of (by ceasing to effectively market your home) but you can’t. There are usually penalties and broker protection periods which safeguard the agent’s interests, but not yours. How confident is your agent in the service s/he will provide you? Will s/he allow you to cancel your contract without penalty if you’re not satisfied with the service provided?

Evaluate each agent’s responses to these 10 questions carefully and objectively. Who will do the best job for you? These questions will help you decide.

Until next time, happy house hunting!

Elliot Lau

In the first lesson of this series, you learned that it really isn’t possible for anyone to accurately time any real estate market, including the most experienced professional real estate investor. If you missed the first lesson, you will want to go back to it to get up to speed. As with every lesson, part 1 laid out important fundamentals you need. Each subsequent lesson will build on the prior one. By the end of the series, you will have a complete understanding of what it takes to be a real estate investor.

Dispelling Real Estate Myths

So if one can’t time real estate markets, how is it that some build fortunes, while others don’t make, or worse, lose money in real estate? What are the secrets of the real estate pros? The main difference between these two groups of people is this. Professional real estate investors do their homework. They research, learn, and listen. Researching different markets and trends, learn investment fundamentals and strategies, secure the best financing and carefully choose a Realtor that is an expert in both the market and in real estate investing. Finding that expert Realtor is probably the most important research you can do. Why? Because that Realtor has the best information and pulse on that particular market you are in. A critical mistake amatuer and first time investors make is overlooking the role and importance of the Realtor. This same group puts more thought into deciding on what’s for dinner than how to choose a Realtor.

Myth #1 - All Realtors are created equal.

I’m constantly amazed at how many people believe that. Unfortunately, I’m not surprised. Think about it, what other “profession” has practitioners that do it part time while spending full time at their “real” job? There are few barriers to get into the business. You can complete required classroom instruction in as little as a week, take a state exam the next day and be given a real estate license in the same month that you started the whole process. Heck, my cousin is a waiter at night and sells real estate part time during the day. All of those facts are 100% true. That brings me to the next myth.

Myth #2 – There is little difference between one Realtor and another.

The biggest mistake you can make when buying real estate is to believe that. I have been a Realtor for 20 years and recognized each year as a multi-million dollar top producer. I’ve done it full time and have never had any other job to distract me. During the course of my career, I’ve spent over one thousand hours in non-mandatory education, seminars, workshops, etc. to become an expert in my profession. On top of those thousand hours of formal education, I spend any where from 20 to 30 hours every week studying, researching and networking to make sure I’m always at the cutting edge of my profession. I’m not saying all of this to brag or attempt to get your business. Chances are I will never have an opportunity to meet you let alone work with you. I’m saying this to dispel the myth that there is little difference between two Realtors. Yes, there are people who have a real estate license and practice it “in their spare time.” That’s what makes choosing a Realtor the most important research you will do as you start out. Who would you rather have representing you in probably the single largest purchase you will ever make in your life? A person that sells real estate as a hobby or someone who has spent countless hours to become an expert and practices real estate like a professional?

Myth #3 – All Realtors have access to the same information.

That myth isn’t totally false. While it is true that all Realtors have access to the same MLS information, knowing how to search and find the good deals is what sets them apart. Unlike the yellow pages, the MLS doesn’t have a category named “Good Deals”. If your Realtor doesn’t know how or what to look for, they may not find it. And having access to the same information is not the same as knowing what do to with that infomation. Most Realtors don’t even have the same understanding and knowledge that you will have just from reading this series.

So what can be learned from this lesson? Adopt the fundamentals of the real estate pros. Do your homework. Don’t take shortcuts and never underestimate the importance of carefully choosing your Realtor.

Next up – Seller’s Markets, Buyer’s Markets, Neutral Markets…and The Pros and Cons of Each.

Until then, happy house hunting.

Elliot Lau