Tuesday, January 28, 2014

How To Avoid Making The Wrong Deal

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!

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