Watch Out For Bargain Fever - You Just Might Miss Your Dream Home

by Mikey and Steven Hall

For years the press has pounded the public with doom and gloom real estate news until all but the bravest souls have been convinced that all homes should be selling for next to nothing.

The press does not, of course, report on the majority of homeowners who are not being forced to sell because those stories don't make good headlines. On the other hand we do hear a lot about the sub-prime market and the homes that are being abandoned. The impression created is that of a market which has been completely devastated. While in a general sense it is true that the real estate market has retreated and, yes, homes are going into default and foreclosure in record numbers. And, as a result, everyone in the industry who was marginal is either out of business or in deep trouble.

But real estate value is now and always has been based on location and inherent value . In the right locations, the right homes are quietly selling. Yes, they're selling at reduced (as compared to market peak) prices, but they aren't being given away either. In other words value still sells. You don't read about it because it isn't interesting reading.

Because of the widespread false impression that all owners of all homes in all locations are desparate to sell, we are seeing homespun buyer strategies that are not calculated to help anyone, and some may even lose that dream home. Here are some of the more common buyer strategies:

Watch to see what happens - probably not a good idea

This might not be a good strategy. The house is up for sale. If the buyer likes it what would cause him to think nobody else will? If it's reasonably priced what do you think is going to happen? More often than not the next thing that happens is the house sells.

We actually see this a lot. And, what's really interesting is the buyer who just lost out usually doesn't learn anything from the experience. If it's a home you like, in a neighborhood you like, and you can see yourself enjoying living in the home and the home is reasonably priced and you can make the payments - buy it and be happy. Prices goes down, and prices goes up, but in the long run they go up more than they go down. If you don't believe it, ask your parents what they paid for their first home.

Aways make your offer at least 10% below asking - We disagree - making offers without doing the market research is not a good idea

This tactic assumes the property is already overpriced. Let's think about that for a moment. In today's market there are powerful forces pushing sellers to reasonably price their homes. Moreover, listings cost time and money, and the listing agent is generally not excited about taking listings that aren't going to sell and don't make the phone ring.

Again, if you like the home then you have nothing to lose by letting your agent do some research. The answers to a few simple questions can make a big difference. What are the prices of comparable properties? How long has this property been on the market? Is the seller motivated? Has the price already been lowered and, if so, when and how much?

After doing the research you may be surprised to find out that the house is priced at the market and the sellers are motivated, but not desperate. In such a case a "low ball" offer probably won't win friends and influence people. We often see sellers so offended by the offer they refuse to respond under any circumstance. Yes, that still happens even in this market.

You would think that in a down market Realtors® would be willing to make any kind of offer just to be working with a client. Maybe not. Usually only the agents with absolutely nothing else to do will waste their time with repeated "low ball" offers. Most Experienced Realtors® have learned not to waste their time. Buyers who make a practice of "low ball" offers are generally not perceived as genuine buyers and savvy sales agents with other prospects aren't going to waste their time.

Don't misunderstand. There's nothing wrong with hard bargaining so long as it isn't counterproductive.

Only buy short sale properties - Short Sales can be good buys, but they aren't always a deal

Some buyers are convinced that short sales are the only way to go. After all, aren't you buying at a price which is less than the amount owed on the property? Yes, by definition that's what a short sale is. However, it doesn't always work that way. Some short sale properties are already priced at the market and the lenders usually know it.

Sometimes agents listing a short sale property will place it on the market at an absurdly low price. Why? Because they want the phone calls from potential buyers. They also want offers they can present to the lender. Unfortunately these low offers won't do much to motivate the lender.

Another potential problem is the tendency of lenders to not respond in a timely manner, if at all. Even where there are "communications" with the lender the delays in response to a simple offer can be weeks. The problem here is twofold: (1) the lowered prices create a false expectation of the market encouraging "low ball" offers; (2) the delayed or nonexistent response on the part of the lenders at best is frustrating and, at worst, may cause a buyer to lose other valid opportunities.

Short sales must be analyzed on a case-by-case basis. This means research and leg work. There are not short-cuts.

Only buy properties in foreclosure - Again, tactics which disregard market value are dangerous

A property in foreclosure is a short sale by any name. The difference here is there is less time available to act. Slow lender approval at this stage of the game is almost always fatal. Again, the absurdly low asking prices (prices lenders will never approve) create false market expectations and damage the ability of real sellers to sell their homes.

Buy REO properties - While REOs have their drawbacks this may not be a bad tactic

An REO (Real Estate Owned) is a bank owned property, meaning it has been acquired by the lender as the result of a foreclosure. The bank now has clean title to the property and has it listed for sale with a realtor. An asset manager working for the bank has obtained a BPO (broker price opinion) as to market value and the lender has priced the property according to its internal policy.

Of all of the buyer strategies so far this one has some merit. REO's are non-performing assets and only function as an economic drag on the lender's profits. The lenders are so ill equipped to manage these properties it makes you wonder why they didn't respond quicker back when the previous owner was trying to get approval for a short sale.

The drawback to this strategy is that in California the lenders sell their REO properties in "AS IS" condition. This means there will be no repairs. To make matters worse the lender is an owner who has never "lived" in the property. That means you aren't going to get any disclosures from the lender. The burden is on the buyer to determine what's wrong with the property and how much it's going to cost to fix it. Moreover, most lenders either use their own purchase contract instead of the CAR approved contract or require their own contract addendum. Most REOs also require the buyer to pre-qualify with them, and some even require the buyer to submit FICO scores. In this case however, the effort might be worth it.

Buy location and value - always

All in all, the message to serious buyers is to first look for the location which best suites their family, and their lifestyle, then find the home in which they can live happily for the long run. Once having located the home, do the research to put a reasonable value on the property and negotiate accordingly. After all, the objective is to find a home you want to live in at a price you can afford.

mailto:AskMikeyHall@gmail.com