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).
Your thoughts?
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.
Great tips.
This one is an apartment. Its value definitely should be valued from GRM basis.
The owner has been chasing the market down over a year only to fall behind. Where is the market for it today? Let the market speak for itself.
In 2010-2011, this one will be around $320k ($2000 rent at GRM160).
Thank you whoever you are for a wonderful RE site. One of the top 10 out there and probably top 3 for SoCa!
I’m casually in the market but have no plans to but anytime soon given the still lofty prices some sellers are asking.
What floors me is why do realtors let sellers list at absurd prices they KNOW have zero chance of selling and just disappointing sellers 6 mos down the road. In this market waiting 6 mos with an overpriced listing means have to accept maybe another cut of 10%.
I recall 1992-93 prices were dropping 1.5% in the beach towns of LA and OC. Sellers need realtors with guts to price for sale not fantasy!
I would add that offering price should also consider comp sales and then some in a falling market rather than a discount from what I see are still wishing prices. The RE ad prices are still waaay overpriced although I don’t fault anyone for asking anything; the respect and understanding should just be returned — buyers shouldn’t be criticized for what appear (based on market highs) “lowball” offers either.
Realtors and halfway sane sellers are only acting the part when they act offended and/or criticizing what are deemed to be lowball offers. They do this because it often works and a lot of buyers do give in to a certain level. So if the sellers and their representatives are acting their parts, so should you, buyers!
Counterbalancing the Need to Buy Now should be these points:
1) The market is ‘paying’ you to sit on your hands. (The Bay area is paying $11,750 per month based upon its median’s annual decline, $13,400 monthly from its peak median price in June ’07. If you project that to a year from now, that market’s median will be $160,800 lower. Working out your own market’s pay out is left as an execise for the reader. For instance, in SF itself they’re still drinking the kool aid.)
2) The market is always lowest in December than now. What’s different now is that the following April is lower than the preceding December.
3) The lows of 1996 and 1987 were provoked by much lower levels of default and over-construction. In other words, this market will likely bottom lower than both. My personal guess is 77% below the high generally. Some markets will collapse further depending up their economics.
4) Interest rates will inevitably go up, making any savings towards a downpayment worth much more. And the falling market will make the eventual downpayment much less. And rents will be depressed by failed condos and vacant houses. And finally, whatever stupid reactions by taxing authorities will take a while to filter down on renters. Plus you retain the flexibility to get away from the real stupid.
You are dead-on regarding these 4 points. Although I feel that a 77% decline is an extreme number, the property I currently live in “appreciated” 300%+ in less than 10 years. Therefore, seeing it lose all that equity during an over-corrected market is a very plausible scenario.