We are entering a housing market that will be very different compared to the last 5 years. During the run-up of prices leading to our housing bubble, sellers had the luxury of rejecting offers because there were a dozen more offers on the table. As a buyer, you were expected to be ready and increase your offer if a higher bid came in.
Not surprisingly, this led to a buying frenzy as buyers feared that they would be priced out of the market. People didn’t think twice about overpaying for a home because agents and lenders fed them the false hope of annual double digit appreciation. Zero-down, zero doc, 105% financing and interest-only payments made buying quick and effortless. Sellers were able to milk every penny of “equity” from their homes.
Times sure have changed.
As a buyer, the rules are now changing in your favor as properties sit on the market for 300 to 400+ days and multiple prices reductions become the norm. See the following condo conversion:Price reductions for 535 W DUARTE Rd #11:
|Date||Price||May 03, 2007||$485,000||Aug 09, 2007||$479,000||Sep 12, 2007||$469,000||Oct 26, 2007||$459,000|
|Feb 06, 2008||$448,000|
|May 09, 2008||$438,000|
So what can you do take advantage of this turning market?
1) Do your research first
Sites like NeighborCity.com, Refin.com and ZipRealty.com provide a near-comprehensive list of homes currently for sale. Many sites can refer you to an agent or broker who will provide their services after you’ve drawn up a short-list of potential homes.Through these brokers, you have room to negotiate their fees by getting up to 2/3 of their usual 3% commission back. If you don’t want the cash, then have the broker agree to a lower commission rate and take the difference back in a lower purchase price. The choice is yours
2) Make your first offer and go down from there
Let’s face it, we are facing a record-high inventory of unsold homes and the urgency to secure a home with a higher offer is a thing of the past. When the seller tells you they have more interested buyers waiting in line, I suggest you wait a few days before calling back with a lower offer. Chances are, they will panic and come down on the price. Trust me, if there was another “better” offer on the table, the home would’ve already been sold. This is not a housing market where sellers can afford to be picky.
Whether you go with the fundamentals of affordability, GRM or comparable sales, decide on what you will pay for a specific home and start from there. It can be 10, 15 or even 20% off the asking price. It doesn’t matter if the seller is facing financial distress, underwater on their loan or even on the brink of foreclosure. Remember, always counter with a lower offer in increments of your choice (e.g. $2,000, $5,000 or, heck, $10,000).
These are just 2 of a dozen tips I have out together. Although we are far from reaching the bottom of the market, it doesn’t hurt to prepare yourself for the right buying opportunity.