Tips for Getting the Best Home Price
Turmoil in Real Estate Markets Shows Need for Investment Strategy
The ups and downs of the real estate market as the economy bounces between recession and recovery shows a need for a home investment strategy adapted to market conditions.
The need is greatest in areas where fluctuations in a few key industries can make or break real estate prices.
Any investment strategy needs to consider lending standards and interest rates. The lending standards, based largely on a borrower’s credit rating and employment, determine who gets a loan. Interest rates influence the monthly mortgage payment.
In the Midwestern United States, homeowners are more likely to rent their properties because prices remain relatively stable, thereby reducing the opportunity for a quick profit by selling, or “flipping.”
In the Eastern United States, flipping is more common as sharp movements in market conditions create potential for profits with rising real estate prices.
One of the first temptations to avoid is listing a home at a high price to see whether someone will purchase it. Realtors will tell you not to do it.
A high price makes a home more likely to languish on the market for a long time. The longer it remains on the market, the more potential buyers will assume there is a problem with it.
Real estate firm McEnearney Associates compiled data showing homes that sold in the first week after being listed sold an average of 2.08 percent over their list price. Homes that stayed on the market for four months sold an average of 11.53 percent less than the original price.
"It is incredibly important to price the home absolutely perfectly via research and market expertise, then stick to your price," said Fritz Hubig, a real estate agent who operates the firm LuxuryDC. "I have sold the most expensive home per square foot in several different DC neighborhoods and never, ever, done a price reduction. I generate discussions and promote places I see with potential."
Here are some other tips to get the best price when buying or selling a home:
1. Choose a real estate agent who does the best job of explaining the reasons for choosing a certain price. Some clients will choose a realtor who suggests the highest price without considering whether it is realistic. Realtors should provide a comparative market analysis that shows sales prices for similar homes nearby that sold in the past two months, how many days they remained on the market and the differences in list prices and sales prices.
2. Go to open houses to compare the home you want to sell or buy with others in the same community. Check out their price per square foot and amenities to compare them with the property that interests you.
3. Research properties nearby that were taken off the market recently. If a house you want to buy or sell is priced about the same as similar properties taken off the market, then it’s probably overpriced.
4. Take into account whether the real estate market is appreciating or depreciating. If your real estate agent or financial advisor says the market is rising, you can get a higher price than if it is declining. Generally, if the market is close to bottoming out, the time is ripe to buy. If home prices appear to be peaking, it’s time to sell for owners looking for a different residence.
5. If you’re buying a For-Sale-by-Owner Property, ask for a discounted price. A seller’s agent commission averages 6 percent. After researching the appropriate price for similar houses nearby, adjust your offer downward by about 6 percent. A common problem with For-Sale-by-Owner properties is that the owners overprice their homes because they lack a realtor’s guidance.
6. Seek out reputable discount real estate brokerages. Large real estate firms tend to be more high profile because of their large marketing budgets. However, they operate with high overhead expenses that result in higher commissions. Some smaller firms offer the same services as their bigger competitors but often with savings of 1 percent to 1.5 percent. On a half-million dollar property, even a 1 percent lower commission saves the client $5,000. On a quarter-million dollar property, the client saves $2,500. Other firms will offer valuable referral fees to compete effectively against larger firms. One of them, Washington, D.C.-based The Legal Forum (www.legal-forum.net), offers referral fees that start at $1,500 for home sales and purchases in the nation's capital. The referral fees increase by $100 for each $100,000 of added value to the property over $200,000.
7. Get an appraisal. In many cases, the lender will order an appraisal at the borrower’s expense. Lenders want to ensure that if a borrower defaults, they can recover their money in foreclosure sales. The appraisal also helps the buyer and seller determine whether the selling price is appropriate.
8. Get a home inspection. Home inspections, which normally are done after a property is under contract, can show hidden defects that might affect the price. Buyers then can ask the sellers to make repairs or discount the purchase price.
Following these guidelines should help buyers and sellers make well-informed decisions for one of the biggest investment decisions of most people’s lives.