If you are currently in the market for a new home you're no
doubt perusing all of the real estate websites out there, trying to find the
infamous "Perfect Home" for the even more elusive "Bargain
Price". One thing that is always important when you look for a new home,
whether you are buying a new home or you are selling your home, is that you
really need to know your market. Consumers can read the national news stories
about the real estate market all day, but that really won't help because your
market is going to be different. For example, there are certain places like
Detroit where properties are so cheap that people are practically giving them
away. Now jump on a plane down to Grapevine, Texas; inventory in Grapevine is
at a 3 year low and is still dropping. I recently had a listing in Grapevine
and it sold in 1 week. Knowing your market makes a huge difference on a variety
of factors such as how quickly you need to move on a property, what price you
need to offer, and how much earnest money you should put down. I am going to
quickly address each of these for you and give scenarios on what could happen
to you.
There's
no doubt that the housing market is really coming back and gaining ground.
There are reports and articles everywhere that are saying more and more that
the housing market is beginning to rebound. Having a local expert advise you on
your market is crucial in the home buying process because while the housing
market is making a comeback, you really need to know how far along the housing
market has come in the area you're wanting to buy. But even more than that, you
need to know information about the immediate area you want to be in, and the
specific neighborhood you want to purchase in. Have there been any foreclosures
in the neighborhood? How long have homes been sitting on the market in THIS
neighborhood? You may find that a few blocks over homes are selling faster
because the school district changes or it was built by a different builder and
the quality of the homes are a lot better. The key here is that you need to do
your homework, but you really need the expertise of a local real estate agent
because they have access to a wealth of information that the ordinary person
doesn't.
Scenario
#1 – Lets say that you are a buyer moving in from out of state and where you’re
moving from homes just aren’t selling that quickly. Coming from that kind of
market, you’re going to have a different mindset. Or better yet, lets say you
want to sell and buy in your current market and when you purchased your home,
you were able to really negotiate and get a great deal. This time around you’re
probably expecting to at least get a decent deal and make the seller come down
to where you think they should. Your Realtor tells you that the market is
really improving and things are selling and you find a home that you like and
you low-ball the seller, hoping for a sweet deal. The seller responds by coming
down only a few thousand, nowhere close to your offer price. You walk away. The next home you find is really great and you
decide to try the same tactic and low-ball the seller, but this time there’s
already another offer on the home. You find out that your offer is well below
the other offer and you lose the house. If you are looking in an area where
every time you find a home there’s already an offer on the table, it’s time to
reevaluate your strategy.
Scenario
#2 – You’re a seller in a market that is really moving and homes are selling
quickly. As a seller you are obviously over-joyed and decide to capitalize on
the current market. So you decide to list your home with an agent, but you tell
the agent to list it well above market value. Your home gets a few showings but
no one makes an offer and your home sits on the market for months and doesn’t
sell. Your rational is that hey, if they really like it, they should just make
an offer and we can negotiate. Unfortunately that’s not how the mind of a buyer
works. What will end up happening is that your home will help sell all of your
neighbors homes because they see how over-priced you are and think that they
are getting a great deal with the home down the street. Your home continues to
sit and hits the six-month mark. You finally lower it to market value, and then
you get an offer well below that. You start thinking that this is the only
offer thus far, so you better take it or you will miss out and you lose money
in the process because you thought you could capitalize on the improving
market.
Both of
these scenarios are based off of the feelings of someone wanting to get a
really good deal and have nothing to do with the facts of the market. In the
first scenario the buyer had an expectation that they deserved a really good
deal. Not to say that they won’t get a good deal, but they need to make sure
that their idea of a good deal is realistic. I have had investors ask about
listings that I have had and when they ask about the price, they literally
started laughing out loud at me. I was polite and tried to explain what was
happening in the market and they insisted that they knew the market better than
I did. Within a week I had multiple offers, several of them over asking price.
Just because you have bought and sold a home before does not make you an
expert. You have valuable experience yes, but this does not substitute the expertise
that you will get with a knowledgeable Realtor.
There
are still neighborhoods and homes that you can negotiate and get a good deal.
If it is a highly sought after neighborhood and there is already an offer on
the table, you probably need to offer what the seller is asking for. Be careful
not to go from one extreme to another. You don’t need to go overboard and offer
a seller $10,000 over asking price just because you don’t want anyone else to jump
in and get it before you. I’ll temper that statement by saying, if you’re
bidding on a HUD home and it is listed well below market value and it has
multiple offers, you may need to go well above the asking price.
I recently had another agent tell
me that they submitted an offer to a seller for only $5,000 below asking and
the seller sent it back and said, "make me a better offer". Another
home just a few blocks away from me sold in just 3 days. Why? Because it was
priced appropriately.
In scenario 2 the seller really
hurt the sale of his home because he wanted more than what his home was worth.
As a result it sat on the market for a long period of time, and by the time he
lowered the price to where it should be, buyers saw how long it had been on the
market and knew that they could negotiate because it had been listed for so
long. In the end the seller had to sell his home for below market value because
he didn’t understand the market. This doesn’t mean you have to list your home
below everyone else just to sell it. Having an agent show you what your neighborhood
is doing and pricing it according to the progression of the market is very
important to getting your home sold.
The moral of the story here is that
you cannot low-ball a seller and expect to get the house, but by the same
token, you cannot list your home $20,000-50,000 over market value and expect it
to sell because the "market is on fire!". The key here is to be
realistic and to hold your expectations in check. Until next time, happy house
hunting!