In the real estate world, there was one word — repeated three times — that used to be the cardinal rule: location, location, location.
Just about anybody — the informed and uninformed — could buy a house in a good location and easily make money by flipping, selling or refinancing the home, sometimes after just a short ownership.
That was then, before the Great Recession.
This is now, and the new cardinal rule of real estate is information, information, information.
“For decades, the real estate industry has operated under the principle that the less information buyers and sellers have, the better it is for agents, lenders, title companies, and all the other folks who eat from the trough,” writes Ilyce Glink in “Buy, Close, Move In: How to Navigate the New World of Real Estate — Safely and Profitably — and End Up with the Home of Your Dreams” (Harper Paperbacks, $14.99). “But the real estate tide seems to be turning, as the housing and credit crises of 2008 have heightened awareness in Washington, D.C, and on Wall Street about the catastrophic consequences of a closed information loop.”
I have no doubt that many professionals in the real estate industry will take great exception to Glink’s observation. But the evidence is on her side. We ended up in one of the worst housing market collapses because far too many borrowers were uninformed, ill-prepared and overly optimistic about potential gain because of bad information they received and gladly embraced.
Years of expertise
Glink has spent years covering the real estate industry and that’s why for August, I’m recommending her book for the Color of Money Book Club.
Glink is also the best-selling author of “100 Questions Every First-Time Home Buyer Should Ask.” She co-authors a syndicated column, “Real Estate Matters,” that appears in The Washington Post and other newspapers across the country.
In her new book, Glink looks back at what happened and then forward to what’s to come in the real estate market. As she reports, millions of people have seen their home values plummet, in many cases by 40 percent to 50 percent. One group of economists has suggested that housing prices won’t recover until 2017.
But this book isn’t all pessimism. It’s also a guide to help buyers and sellers navigate the brave new world of real estate. Glink offers advice on what to do in a new era of declining home values, the changing role of Fannie Mae and Freddie Mac, fixing your credit, calculating what you can realistically afford and snagging a house through a short-sell or foreclosure. She even ventures to help those still brave enough to want to buy investment property.
I think you will find the section on the 10 things that have changed in real estate particularly sobering. If you’ve been looking for a home, you know that No. 1 is that you need a lot of cash to buy a home these days. Of course, the industry has long known that the more money someone puts down on a property, the less likely the person will default. In this case, an old rule is the new rule.
Don’t just jump in
One question I often get concerns whether to buy now because housing prices have bottomed. Some people are afraid they will miss an opportunity to profit from the housing meltdown.
But fear is the wrong emotion to drive a home-buying decision, Glink warns.
Buyers often overestimate how prepared they are financially to become homeowners. In an online survey conducted by BBVA Compass, a Sun Belt-based bank, 51 percent of the people who had purchased a home in the previous 12 months said that their housing expenses were more than they had initially calculated.
Buy a home before you’re ready and you’ll end up with a home headache.
“One thing that hasn’t changed is that in order to play the real estate game well — including buying, financing and closing on your new home — you must know the rules,” Glink writes.
This is the worst of times and the best of times for real estate. It’s up to you to determine if this will also be the age of wisdom or the age of continued foolishness.
I’ll be hosting a live online chat about this month’s pick at 11 a.m. CDT on Aug. 26 at washingtonpost.com/discussions. Glink will join me to take your questions.
Every month, I also randomly select readers who will receive a copy of the featured book, donated by the publisher. For a chance to win a copy of “Buy, Close, Move In,” e-mail colorofmoney(at symbol)washpost.com with your name and address.