How to sell or buy a home in a challenging market
Price to sell. “I don't think that there’s an agent in his right mind that would suggest that a seller hang on in hopes of a higher price in this market,” said James Van Ness, a broker with Kinlin Grover GMAC Real Estate. “Anything that is going to sell in this market needs to feel like a bargain to the buyer. Whatever you think the price should be, reduce by 5 percent to 10 percent, depending on its location. Then, if you are fortunate enough to get a quick offer, work with it. Nine out of 10 times it will be the best you get. If you throw the fish back in with hopes of a bigger one, it could be a long wait.”
“Be sure to interview several real estate agents when you plan to list your home,” added Bett McCarthy, regional vice president of Kinlin Grover. “Always ask the agents to inform you about your competition and the number of similarly priced homes. Be wary of an agent who suggests a price higher than what others recommend in order to get your listing. Correct pricing is critical. Buyers are educated and do their homework and will not pay for overpriced homes. Overpriced homes sit on the market.”
Consider all credible offers. Holding fast for a better offer might put you in a situation where you're merely playing catch-up with a moving market. Don't assume there'll always be another offer coming down the pike.
“Sellers are usually emotional about the value of their home,” explained Lori LaBarge of LaBarge Homes. Many sellers will unwisely hold out on a very reasonable offer to seek a few extra dollars. But that may make it difficult or impossible for the prospective buyer to get a higher mortgage in this market. Moreover, it inhibits the seller’s ability to buy another house at a very attractive price in a down market – or use the money for another investment that will generate immediate income, she said.
“Often, the first offer is the best. Newly listed homes get noticed by agents and buyers,” said McCarthy. “After 30 days on the market, there is a noticeable decline in showing activity. Many sellers think they should wait, but this can be a big mistake.”
Spice up the offer. Buyers are requesting all kinds of enticements to spice the pot. Club memberships, prepaid lawn maintenance, moving-expense reimbursements, all appliances included and liberal repair credits are just a few possible throw-ins. Don't be shocked if you hear, "Throw in that plasma TV and we've got a deal." Consider in advance how far you'll be willing to go.
Catch the wave at the source. Prepare your home for sale at the very earliest point this spring (early March or even late February), the time when seasonal buying interest is just starting to build.
Preserve your equity. Until the market stabilizes, refrain from borrowing from home equity (or raiding your 401(k), for that matter) to pay your bills, or for vacations and other purchases.
Gain in a sell/buy scenario. If you'll be buying another home at the same time you're selling your current one, the price reduction on the new one can compensate for the “loss” you're taking on the old one. If you plan a move up to a better neighborhood and are paying 10 percent below list after selling your old home for 10 percent below list, your net dollar savings will actually be more.
Stay put, if possible. If you're happy in your home and are meeting your expenses but want to sell due to continuing housing bubble fears, sit a spell. A home is a shelter first, and investment second. Except for a handful of markets that are still hyperinflated, odds are that it will pay to ride out the storm. Generally, the early stages of a downturn are the scariest because that's when amateur investors are dumping spec properties.
“Cape residential sales prices remained steady in 2007,” said McCarthy. “This may be a good time to buy. Sellers are pricing realistically in current market conditions. According to a recent report, the Northeast market has stabilized. Interest rates are attractive.”
Home buying tips
Negotiate with builders. Don't be afraid to ask builders for concessions such as steep price discounts, closing-cost waivers, luxury upgrades, free landscaping, free trips and free club memberships. Many builder-incentive packages are worth $10,000 and up! In some markets, such as Boston, new condos are selling for 20 percent less than they were in mid- to late 2005.
Negotiate with home sellers. Unlike the go-go market of recent years, offers of 5 percent to 10 percent or more under asking price will not be inappropriate. “Work with an agent who represents you. Many agents have excellent negotiation skills. Strategize with them to make the best offer. Find out how long a home has been on the market and for any clues to indicate a seller’s motivation,” said McCarthy.
At the same time, it is not all about price. “I would encourage buyers to negotiate a good value, but do not underestimate the emotional value in the negotiation,” said LaBarge. This is going to be your home. Do you want a house you don’t love at one price versus the home that you do adore, even if it is more expensive? “So many buyers walk into a property and just get an immediately feeling about it. Either they have to have it or they hate it. In a buyer’s quest to find a great deal, they often lose out on the property they really want” – even in a down market.
Avoid hot spots. Stay away from buying homes in neighborhoods that appreciated significantly above average home prices in recent years – especially if you're moving for the short term. Once prices in these hot spots are corrected, these often see slower upward movement or remain flat after the overall market heads north again. “The exception: waterfront property,” said McCarthy.
Modesty is the best policy. Consider more modest homes in well-maintained, established neighborhoods. By contrast, pricing and re-pricing on expensive homes, new homes and new condos make those products riskier during down cycles.
Flexibility. For maximum flexibility in pouncing on the right deal, get preapproved for your home loan. Said McCarthy: “If you’re not paying cash, this is absolutely expected. Often sellers will not consider an offer from a buyer who is not preapproved.”
Follow fundamentals. Just because a lender will advance you money to live or build beyond your means doesn't mean you're standing on sound fiscal footing. Avoid risky interest-only loans and ARMs, opting for fixed-rate mortgages instead. And learn from the recent past: Don't assume housing will appreciate enough in the near term to cover your home's rising interest rates. In some limited cases an interest-only or ARM can be beneficial, depending on the rate, said McCarthy. “For example, if a buyer plans to sell their primary home in the next few years and intends to pay off the loan on their second home. All ARMs are not created equal. An important item to watch is how and when adjustments are calculated. Watch out for negative amortization,” she said.
Be creative. “With property values at the lower range coming back to earth, it has allowed the first-time buyer to get back in the market,” said John W. Terrio of First Horizon Home Loans. “Buyers, when looking to make an offer, should utilize tactics to save on costs by including seller funded buy-downs or credits.” This will allow the seller to participate in the transaction, allowing the buyer to buy-down the start rate on the interest of the loan or pay for some, or all, of the buyer’s closing costs, he added. “Often this will also work to the benefit of the seller in not having to lower the price of the home as much as the market may want them to.”
Published in Cape Business Health & Wealth March/April 2008
