Last year, a record 4.8 million existing homes were sold and buyers snatched up a record 888,000 new homes fostering another record: 69.1 million homeowners with a piece of the American Dream.

The seemingly unstoppable economy continues to spawn more and more home buyers, but with the demand comes a crunch on the supply. That pushes up prices, not just in hot spots, like Silicon Valley, where the average February price was $500,000, but in Smalltown, U.S.A. as well.

"There are some shortages of homes available for sale in many areas, and that is a factor in rising prices. Historically, we see price increases of one to two percentage points above inflation - now we're almost three points higher than the inflation rate," said Dr. Fred Flick, vice president of the National Association of Realtors.

The trade-offs are longer commutes, more highway congestion and an eroded quality of life.

"New home buyers are being forced to make a choice. Pay less and commute longer distances or pay more and improve your quality of life," said Eric Morley, principal with the Morley Hunter Group in San Jose, CA the Silicon Valley/Santa Clara County seat, where average home prices broke the $500,000 barrier in February.

Bidding Wars

Those who can't handle the commute are more and more often finding themselves caught up in a bidding wars race against ever escalating prices.

"The highest bidder is not necessarily the smartest bidder. There are some prices you just don't want to match or exceed," said Bruce Hahn, president of the Arlington, VA-based American Homeowners Foundation, an independent educational consumer group.

Record low mortgage rates allow many to compete for homes they otherwise couldn't afford. The no-matter-what approach to home buying has Hahn concerned for those engaged in what's perhaps the most expensive and complicated transaction they'll ever attempt.

"The economy overall is good. People are optimistic. The danger is they do some stupid things like not getting a home inspection or not obtaining a true sense of what the fair market value is for a home," said Hahn.

"It's a stressful decision any time. You add the stress of people trying to get in before rates and prices go up and you have a lot of people making irrational decisions," he added.

Do The Right Thing

What buyers need is methodical plan, like the foundation's "Complete Home Buyers Guide" (AHF, $12.95). Written by Hahn, the 151-page guide book helps buyers avoid many of the home buying traps that cost unnecessary time, money and headaches.

It advises unbiased advice and objective information gleaned from careful research and teaches buyers to analyze they housing needs, determine what factors will affect appreciation in the neighborhoods they are considering.

The guide also helps buyers focus on the relative importance of various home features, helps them navigate the mortgage maze and explains buyer agency.

"In most cases the real estate agent is working for the seller", according to Hahn.

The foundation puts strong emphasis on buyers hiring their own agents.

"A buyer using a traditional agent is badly outnumbered. He or she is negotiating with two agents and two agencies representing the seller and the seller as well. The buyer has to learn how to be a good negotiator, or get a buyer's agent to represent them," Hahn added.

Power to the buyer

To that end, the foundation also offers a program called "Buyers Power!" an independent national referral service for connections to exclusive buyer's agents. An exclusive buyer's agent contractually represents the buyer in the same manner as a traditional agent represents the seller. As such, the buyer's agent owes loyalty to the buyer and may not disclose confidential information to the seller.

"We apply a rigid standard of ethics and experience to agents we allow into the program. We select the agent most qualified to represent the buyer. And we monitor the buyers agents performance and the foundation measures the level of buyer satisfaction with those agents," says Maggie Delgallo, foundation program manager and a licensed broker who practices exclusive buyers agency.

Contact the foundation toll free at (800) 489-7776 or send e-mail to amerhome@aol.com. "The Complete Home Buyers Guide" is available for $12.95, plus $3.00 shipping and handling. Order by calling the foundation's toll-free number, or by sending a check or money order to the American Homeowners Foundation, 6776 Little Falls Road, Arlington, VA, 22213-1213. A free brochure outlining the Foundation's publications and programs is available on request.

Published: April 13, 1999

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