Best ways to cash in on a buyer’s market

October of 2006 promises to be one of the best months inmany years to be a home buyer. Unlike the past few years where there were morequalified home buyers than sellers (called a “seller’s market”), thecurrent “buyer’s market” is just the opposite with more homes forsale than there are qualified buyers in the market place.

If you have been considering a home purchase, there are atleast five key reasons for buyers to take advantage of the current home”buyer’s market” in most cities.

Purchase Bob Bruss reports online.

They include (1) a record number of brand-new and resalehouses and condos on the market for sale; (2) competition among sellers is keenfor the available buyers; (3) new and resale home prices have stoppedescalating and are “plateauing” or even dropping slightly in mostcommunities; (4) mortgage interest rates are still very affordable; and (5)motivated sellers are eager to negotiate on price and terms.

Of course, the smartest home buyers, even in a buyer’smarket, consider only sound, well-located homes in good-quality schooldistricts to enhance the probability of future resale profits.

HOW TO BE A SAVVY HOME BUYER. Althougha few home sellers are in panic mode because they see so many homes coming onthe market for sale in their vicinity, the truth is the current home-salemarket is merely a “normalization,” or return, to a traditionalbuyer’s market for homes.

The sellers who are most worried are the homeowners whobought in the last year or two at the peak of the market, and who have to sellnow for valid reasons, such as a job transfer, unemployment, pendingforeclosure, illness, death or birth in the family, and divorce. These areknown as “motivated sellers” who are especially anxious to sell.

However, just because the seller is motivated doesn’t mean ahome buyer will be able to negotiate a “good deal.” The reason is ifthe seller bought at the peak of the market and is not willing to sell at thatprice or below, the buyer probably would be overpaying.

To determine if a motivated home seller can offer a fairsales price, savvy home buyers ask their buyer’s agents to find out (a) howmany 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 motivatedseller, has home equity negotiation room. If not, savvy buyers move on to thenext home.

BRAND-NEW HOUSES AND CONDOS CAN BE GREAT BARGAINS. Manybuilders of houses and condos have unexpectedly found themselves in localbuyer’s markets, which rapidly changed within the last six months. The resultis an oversupply of new houses and condos, which are competing with reasonablypriced resale houses and condos.

To cut their inventories, many home builders are offeringamazing bargains, both in prices and included features or upgrades. Forexample, it is not uncommon to find builders advertising no down payments, nopayments 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 thatbuilders are very reluctant to cut their asking prices. The reason is thatappraisal and mortgage finance problems arise when builders sell below whatthey sold the same model for a few months ago; the builder can avoid suchproblems by instead including more features at no additional cost.

As house subdivisions and condo complexes gradually sell outtheir inventories, smart buyers realize the builders and developers become moreanxious. 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 ishighly motivated to sell those last few units, which represent nearly 100percent of the profit from that project.

HOME BUYER’S MARKETS VARY BY LOCATION AND PRICE. Alittle-known secret is home buyer’s markets can vary by ZIP code areas andprice ranges within that area. Being within the boundaries of a top schooldistrict can also determine if a house or condo is in a high-demand seller’smarket or a lower-demand buyer’s market.

There are two criteria to determine if an area is in abuyer’s or seller’s market. Smart buyers and sellers understand the localsituation is constantly in flux.

The first criterion is to look at the number of houses andcondominiums listed for sale in the local market and their average number ofdays on the market before sale. The local MLS (multiple listing service) hasthis number for resale houses and condos listed with the MLS. However, MLSstatistics usually do not include brand-new houses and condos because mostbuilders do not list with the MLS.

As a general rule, if the average number of days on thelocal market is 60 days or less, that is a house and condo “seller’smarket.” The result is home sellers feel confident their realisticallypriced 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’sor seller’s market for homes is to look at the number of months’ supply ofresidences for sale at the current sales pace. To get this number, simplydivide the number of home sales closed during the last 30 days reported to thelocal MLS by the number of homes listed for sale.

If the result is six months or longer, that means there is alocal 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’smarket” where sellers can hold firm on their price and terms withreasonable confidence a fairly priced home will sell within 90 days, usually less.

A third but less scientific method is to look at the volumeof local newspaper display ads by home builders and real estate brokers. In abuyer’s market, these firms will greatly increase their newspaper ad volume andsizes. But in a seller’s market, they don’t have to advertise very much.

HOW TO AVOID OVERPAYING IN A BUYER’S MARKET. Afterdetermining if houses or condos within the location and price range where youwant to buy are in a local “buyer’s market,” after finding a suitableresidence 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 agentsprepare CMAs (competitive market analysis) showing (a) recent sales prices ofcomparable nearby homes, (b) asking prices of competitive neighborhoodresidences now listed for sale, and (c) asking prices of recently expiredsimilar listings (usually overpriced), smart home buyers also insist on a CMAbefore making a purchase offer.

(2) Home buyers, with the help of their buyer’s agents, thendiscuss the pros and cons of the homes shown on the CMA to arrive at a fairpurchase-offer price for the home under consideration. This key step isnecessary to avoid overpaying.

As smart home buyers know, you can always raise yourpurchase offer but you can never lower it after the seller accepts. Buyers canbe sure their buyer’s agent will show the CMA as justification to the sellerwhen the purchase offer is presented.

(3) Every house or condo purchase offer should contain twokey contingency clauses: (a) one for the buyer obtaining a mortgage based on asatisfactory appraisal of the property confirming the sales price and (b)another for the buyer’s approval of a professional inspector’s report on the houseor condo to be obtained at the buyer’s expense within five business days.

SUMMARY: Local home sales market conditions vary widely butit’s a great time to be a purchaser when a buyer’s market exists in your pricerange and location. Savvy home buyers then take advantage of favorableconditions to purchase their home at a reasonable price and terms after firstbecoming well informed.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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