News and Events
July 2, 2007
Ways to Be a Savvy Home Buyer
Ways to be a Savvy Home Buyer
July of 2007 promises to be one of
the best months in many years to be a home buyer. Unlike the past few years
where there were more qualified home buyers than sellers (called a
"seller's market"), the current "buyer's market" is just
the opposite with more homes for sale than there are qualified buyers in the
market place.
If you have been considering a home
purchase, there are at least five key reasons for buyers to take advantage of
the current home "buyer's market" in most cities.
They include (1) a record number of
brand-new and resale houses and condos on the market for sale; (2) competition
among sellers is keen for the available buyers; (3) new and resale home prices
have stopped escalating and are "plateauing" or even dropping
slightly in most communities; (4) mortgage interest rates are still very
affordable; and (5) motivated sellers are eager to negotiate on price and
terms.
HOW TO BE A
SAVVY HOME BUYER
Although a few home sellers are in
panic mode because they see so many homes coming on the market for sale in
their vicinity, the truth is the current home-sale market is merely a
"normalization," or return, to a traditional buyer's market for
homes.
The sellers who are most worried are
the homeowners who bought in the last year or two at the peak of the market,
and who have to sell now for valid reasons, such as a job transfer,
unemployment, pending foreclosure, illness, death or birth in the family, and
divorce. These are known as "motivated sellers" who are especially
anxious to sell.
However, just because the seller is
motivated doesn't mean a home buyer will be able to negotiate a "good
deal." The reason is if the seller bought at the peak of the market and is
not willing to sell at that price or below, the buyer probably would be
overpaying.
To determine if a motivated home
seller can offer a fair sales price, savvy home buyers ask their agent to find
out (a) how many years ago the home was purchased, (b) what price the seller
paid, and (c) what is the total of the existing mortgages and liens secured by
the house.
The answers will reveal if the
owner, even a motivated seller, has home equity negotiation room. If not, savvy
buyers move on to the next home.
BRAND-NEW
HOUSES AND CONDOS CAN BE GREAT BARGAINS
Many builders of houses and condos
have unexpectedly found themselves in local buyer's markets, which rapidly
changed within the last six months. The result is an oversupply of new houses
and condos, which are competing with reasonably priced resale houses and condos.
To cut their inventories, many home
builders are offering amazing bargains, both in prices and included features or
upgrades. For example, it is not uncommon to find builders advertising no down
payments, no payments for six months, landscaping upgrades, upgraded appliances
and carpets, easy mortgage qualifying, no closing costs, and other sales
incentives.
But smart buyers of new homes should
understand that builders are very reluctant to cut their asking prices. The
reason is that appraisal and mortgage finance problems arise when builders sell
below what they sold the same model for a few months ago; the builder can avoid
such problems by instead including more features at no additional cost.
As house subdivisions and condo
complexes gradually sell out their inventories, smart buyers realize the
builders and developers become more anxious. The reason is their major profit
is in the sale of the last few units.
For example, if you see a builder's
newspaper ad saying "85 of 100 homes already sold" that really means
the builder is highly motivated to sell those last few units, which represent
nearly 100 percent of the profit from that project.
HOME BUYER'S
MARKETS VARY BY LOCATION AND PRICE
A little-known secret is home
buyer's markets can vary by ZIP code areas and price ranges within that area.
Being within the boundaries of a top school district can also determine if a
house or condo is in a high-demand seller's market or a lower-demand buyer's
market.
There are two criteria to determine
if an area is in a buyer's or seller's market. Smart buyers and sellers
understand the local situation is constantly in flux.
The first criterion is to look at
the number of houses and condominiums listed for sale in the local market and
their average number of days on the market before sale. The local MLS (multiple
listing service) has this number for resale houses and condos listed with the
MLS.
As a general rule, if the average
number of days on the local market is 60 days or less, that is a house and
condo "seller's market." The result is home sellers feel confident
their realistically priced house or condo should sell within 60 days in a
seller's market.
The second criterion to tell if you
are in a local buyer's or seller's market for homes is to look at the number of
months' supply of residences for sale at the current sales pace. To get this
number, simply divide the number of home sales closed during the last 30 days
reported to the local MLS by the number of homes listed for sale.
If the result is six months or longer,
that means there is a local buyer's market with an oversupply of residences
listed for sale. However, if this number is three months or less, then it is a
local "seller's market" where sellers can hold firm on their price
and terms with reasonable confidence a fairly priced home will sell within 90
days, usually less.
HOW TO AVOID
OVERPAYING IN A BUYER'S MARKET
After determining if houses or
condos within the location and price range where you want to buy are in a local
"buyer's market," after finding a suitable residence to purchase,
it's time to make a written purchase offer. However, there are several key
steps to avoid overpaying:
(1) Just as smart home sellers
insist their listing agents prepare CMAs (competitive market analysis) showing
(a) recent sales prices of comparable nearby homes, (b) asking prices of
competitive neighborhood residences now listed for sale, and (c) asking prices
of recently expired similar listings (usually overpriced), smart home buyers
also insist on a CMA before making a purchase offer.
(2) Home buyers, with the help of
their buyer's agents, then discuss the pros and cons of the homes shown on the
CMA to arrive at a fair purchase-offer price for the home under consideration.
This key step is necessary to avoid overpaying.
As smart home buyers know, you can
always raise your purchase offer but you can never lower it after the seller
accepts. Buyers can be sure their buyer's agent will show the CMA as
justification to the seller when the purchase offer is presented.
(3) Every house or condo purchase
offer should contain two key contingency clauses: (a) one for the buyer
obtaining a mortgage based on a satisfactory appraisal of the property
confirming the sales price and (b) another for the buyer's approval of a
professional inspector's report on the house or condo to be obtained at the
buyer's expense within five business days.
SUMMARY
Local home sales market conditions
vary widely but it's a great time to be a purchaser when a buyer's market
exists in your price range and location. Savvy home buyers then take advantage
of favorable conditions to purchase their home at a reasonable price and terms
after first becoming well informed.
Article from Homepoint.com
