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Home on a Range of Falling Prices

May 17, 2007 By:
Andrew Lasner, JE Feature
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Now is a great time to buy a house. Prices are falling, and so are mortgage rates. Millions of houses are for sale, and sellers are getting anxious.

Alternatively, you could also say: This is a bad time to buy a house. Prices might be lower in a few months as well as mortgage rates. With more than 4 million houses on the market nationally, and more being added daily, sellers are bound to become desperate.

Why not wait them out?

In many places, it's a buyer's market in real estate, with sellers outnumbering potential purchasers. The resulting downward pressure on prices makes buyers cheerful. But it complicates matters for buyers, too.

In some markets, there are too many choices to sort through. Even more bewildering, buyers wonder if they should wait a few months.

Buyers worry that if they buy too soon and the home prices get reduced by the time they go to settlement, they will have negative equity in their new home. Regardless of these worries, in every market there are people who are serious about buying and don't get sidetracked by market forces that aren't under their control.

"It's a seller's market transitioning to a buyer's market," says David Lereah, chief economist for the National Association of Realtors. Sellers are reluctant to drop their asking prices, but a lot of them might have to "because the buyers now have a little more control, a little more power."

For home buyers, experts have some advice:

· Get pre-approved for a mortgage. Work with a lender who pulls your credit and verifies your assets before you start looking. This will give you a competitive advantage in the market place.

Imagine that you have found the perfect home. The odds are likely another buyer is out there looking just like you are. If you have a mortgage pre-approval in place, you can act faster than a buyer who does not. That could be the difference in getting an offer agreed upon and losing that perfect home.

· If you find the right house at the right price, buy it! If you're serious about buying a house, this is both the first step and the final goal. You're more likely to succeed with the active approach instead of waiting for prices to fall further.

No one can predict when the local market will hit bottom. That's like predicting the bottom of the stock market. Even the experts can't do that.

· Put technology and a buyer's agent to good use. Technological innovations are popping up on real estate Web sites practically every week. Among the most useful are valuation tools such as Zillow.com and Realtor.com.

Zillow has the best known of these called the "Zestimate," which is a computer-generated estimate of a house's market value. Be careful, though, since the numbers Zillow uses in their calculations are not always the latest information.

Using these tools will help you focus on excluding houses you're not interested in because they don't fit your criteria.

It's useful to hire a buyer's agent to sort out the market. You have your pick of agents now, and you should be asking what's their experience, how long they've been in the market, what price they specialize in. If you find a house you like, ask the agent to perform a comparative market analysis; also, do your own analysis online.

Compare your research with your agent's. If they corroborate each other, fine. If something seems amiss, find out why. (An experienced agent is almost surely more accurate than Zillow.)

· Negotiate effectively. Right now, there's more room for negotiation in most housing markets, because the sales pace and prices have been falling.

Buyers need to avoid the temptation to toss out lowball offers, because sellers won't negotiate if they feel insulted.

You have to be able to defend that offer as much as the seller has to be able to defend the asking price. If you're not making a full-price offer, it's not enough to pull a number out of the air. You should be able to show that this neighborhood has 20 comparable homes for sale, and, although you like the property, it's priced six percent above the other properties.

That gives you a better footing for establishing an objective and reasonable negotiation.

· Consider asking the seller to pay mortgage discount points. Paying points is an incentive buyers can get, and Uncle Sam sweetens the deal.

Let's say the buyer makes an offer that is three percent lower than the asking price. The seller is firm on the price but is willing to be flexible by working with the buyer's interest rate and tax bill.

The seller pays three discount points and lowers the buyer's mortgage rate approximately three-quarters of a percentage point. By paying the discount points instead of selling for less, the seller gets the price, the real estate agent get a bigger commission, and the buyer makes lower monthly payments and gets to deduct the points from income taxes.

That's right. You pay the discount points, but the buyer gets the tax deduction. It's a win-win-win-win deal for everyone in the transaction.

Andrew Lasner is Realtor and a senior real estate specialist at Keller Williams Preferred in Newtown. He can be reached at 215-860-0800 or e-mailed at: Andrew1@ comcast.net.


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