Thursday, July 27, 2006

'Good Deal' Matter of Interpretation

Everybody's looking for a good deal. Sellers want the highest price possible and buyers want to buy a house below asking price. They both want the same thing -- a good deal. Following years of a sellers market, many consumers are facing a more normalized market across the country. Particularly, in large metropolitan markets, the normalizing of the market has created a wait and see attitude on purchasing or selling real estate.

For the wise investor/home buyer, the cautionary phrase of "wait to buy real estate" should give way to "buy real estate then wait." One of the keys to savvy real estate investing -- whether for personal use or wealth building -- is timing. In a seller's market, every buyer who was serious about getting into a home, knew it was time for bidding up. Getting the best price with the best terms was not a winnable strategy for so many buyer. The name of the game was winning the house.

Interestingly, buyers had no problem bidding up a house $25,000, $50,000, even $100,000 to "win" the house in the Washington, D.C. market just a few months ago. And as prices moved upwards at a clip of 20 percent per year, more buyers jumped in, buying high in hopes of gaining a lot of money in a matter of weeks and months.

Now that price escalations have simmered to a normal pace -- the buyers have stopped the bidding frenzy -- which is exactly when the smart buyer should enter the field.
In a buyer's market, buyers must understand that those who negotiate win, and win big. If you have a house on the market for $420,000 and you want to get it for $399,000 the only thing stopping you is your personal will. If you think you want it for that amount -- then write up an offer for that amount and let the negotiation begin. In addition, while you're offering less money, toss in a home/radon/roof inspection, $5,000 in closing costs and the hot tub in the backyard.
Meanwhile, on the other side of the fence, sellers must learn a lesson early in a normalizing market -- it's time to price ahead of the market (that means get ahead of the price reduction curve).

Pricing ahead of the market, makes many sellers cringe, thinking they are "losing" money on their house. This attitude makes me shake my head in wonderment when I think about it. Looking over average sales prices as if it were a stock quote, homeowners will talk about how they have "lost" money on their home. The discussion goes something like this:

"I lost $30,000 on my house. It's only worth $410,000 now."

"Really? So, you bought it for $440,000?"

"No – but my neighbor's house sold for $440,000 last fall and now the same model is on the market for $410,000. I have the same model, so I must have lost $30,000."

"I thought you bought your house five years ago for $220,000?"


"So where did you lose the $30,000? Sounds to me like you've gained $190,000."

It's all a matter of perspective. If you've gained $190,000 and you want to move up (or down) the level market is the time to get off the fence and make the good financial decision. Though your house price may have dropped -- so has the house price of the move up property.

Sellers should also heed a bit of advice that all agents know and understand -- the first offer is usually the best offer. As a seller, if the price really looks low -- flow with it. Counteroffer. Make the terms and price work. Obviously, beware of bottom feeders - those who are looking for desperate sellers; however, a price fluctuation of 5 percent is not that bad.

The problem for home sellers is the psychological challenge they face, realizing that 5 percent may represent $20,000 dollars. If you're moving up, though, keep in mind the $20,000 "loss" on your sale, may be leveled out by the $20,000 "gain" on the move up property.
The hot market of 2006 has begun. The economy is booming, inventory is up, prices have leveled, interest rates are still historically low -- what are you waiting for?

Published: February 10, 2006

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