By Steve McLinden
RISMEDIA, Jan. 5, 2008-(Bankrate.com)-Heading into 2008, the market just isn’t turning around as so many predicted. The industry, it seems, has been caught up in a game of “projecting.” Meanwhile, this pesky subprime headache lingers on as we start to draw a clearer picture of how recklessly this shaky housing-market foundation was laid. It’s a hangover that will last well beyond New Year’s Day.
In contrast to the billions in risky ARM loans that were advanced to questionable borrowers toward the end of the boom years, many credit-worthy buyers are now getting a different kind of arm — a straight-arm — when they seek out mortgages amidst a backdrop of spiraling foreclosures and plummeting prices.
Here are eight strategies for buyers and sellers who want to make a housing move in ’08:
1. Understand what “market value” means. It’s not what your friend sold his house for two years ago or even two months ago. It’s not the value your latest tax assessment was based on or what an appraiser said the house was worth a year ago. It is exactly what someone is willing to pay for your house today. Hence, price realistically and broaden incentives, such as closing costs and throw-ins like appliances, flat-screen televisions, etc. There is an old saying: “There’s nothing wrong with a home that the right price can’t fix.”
2. Don’t be an as-is seller. That is, unless you absolutely have to be one. Potential home buyers aren’t looking for fixer-uppers in the current market unless they are rock-bottom, bargain-basement priced. Large volumes of foreclosed homes are already being sold in poor condition at auction.
3. Hire a top performer. These days, you need an agent who outshines the others and routinely posts better-than-average sales numbers year after year. Agencies may try to steer you toward less-seasoned agents, but if you’re paying the commission, then the hire should be your call. The best agents have an innate sense for that right price and right marketing plan. They can suggest the necessary repairs and tweaks while targeting your home to the right buying group.
4. Know your market’s nuances. No two markets are exactly alike. Yes, most sellers are now swimming upstream. But there are always counter currents to consider. In many areas, modestly priced homes have bigger buying pools because tighter mortgage qualifications are keeping buyers out of more expensive homes. A little research and a savvy agent can give you an edge and an education.
5. Use the Internet. According to compete.com, total time spent online rose 24.3% from the fall of 2006 to the fall of 2007. Yes, people are still scoping out newspaper classified ads and real estate listing magazines, but more and more Americans have been wired to at least start their home shopping online.
6. Use other people’s money. You don’t have to sell for a big loss to get out from under your rising mortgage payments. If you can, rent out your home for a sum that covers your house payments, insurance, taxes and maintenance costs. Do try to roll in a slight buffer to cover unanticipated expenses. And realize you’ll need capital to refresh the place when the market stabilizes and you take off your landlord hat to prep the home for sale again. Or consider offering lease-to-own terms to your renter and you may not have to worry about the future sale.
7. Become a “lender.” Tough times call for unconventional measures. Consider carrying part of the buyer’s note with interest, secured by an asset belonging to the buyer. Do so only after a thorough credit check and only if you can afford to wait for the balance of the purchase price. This, by the way, is not a game for the faint of heart.
8. Simplify and neutralize. In this sales environment, you’ve probably already been told to focus on curb appeal, add fresh landscaping and de-clutter the house by removing family photos and heirlooms or other items you don’t need or use on a daily basis.
But let’s take it a step further. Paint your rooms neutral colors. Hire a redesign or home-staging firm to help you present your home in optimal condition and give potential buyers a chance to envision their possibilities there. And while you’re at it, get a pre-listing inspection, which will reveal any defects your home has and allow you time to make repairs. Then provide a copy of the report to buyers, attaching a list of the fixes you made.
Buyers are in an enviable position, with plenty of homes on the market, and sellers who are willing to bargain. Here are eight tips for buyers.
1. Negotiate, negotiate. There’s a glut of homes on the market — more than twice the average inventory in some markets. Yet there are fewer prospective buyers with whom to compete, and considerably more room for after-the-purchase value appreciation than a few years ago. Sellers are fixing up their places like never before in hopes one serious buyer will come along. Your chance to pick up a quality home for a big discount may never be better than the present. Keep those counter-offers coming. And let the seller pay all the commissions! Remember, virtually everything in a real estate transaction is negotiable.
2. Think local. I’ve said it before: All real estate is local. Employ the standard strategy of examining recent sales prices of local comparable, or “comp” houses. But take it a step further. Ask your agent for the original listing prices of comp houses and compare them to the actual sales prices. Many Internet sites also have this information. This data will give you the clearest picture of what sellers were willing to accept for their homes in your neighborhood and can help you determine just how low you can go on your offer.
3. Don’t bank on further market drops. If you have the means, pounce on that oh-so-sweet deal. This cycle appears to be at or near the bottom. You can’t confidently count on the market sinking any lower, even though it may.
4. Keep resale potential in mind. Sure, you always seek out properties with that at-home feel. But if you can find homey in or near a growing medical district, growing university or other vibrant employment center, your resale universe down the road will always be larger than the market average.
5. Look beyond cosmetics. A tired-looking house in a great area may be a much better bargain in the overall scheme of things than a sprightly, higher-priced home in the same area. Yet many of these slightly worn homes, lest they be on the foreclosure auction block, are getting roundly ignored. There are some diamonds in the rough out there now!
6. Consider off-peak sales seasons. Yeah, there’ll still be bargains aplenty come the prime spring and summer selling season and plenty of inventory to peruse. But fall and winter can be the time of especially acute seller discontent. Sellers may be more motivated to take your lowball offer then — especially if it’s the only one they get!
7. Use your buying leverage. Ask the seller’s agent when the seller bought the home, how much he paid for it, and why he’s selling. In a seller’s market, the seller would likely thumb his nose at you upon such a request. Now, they may give it a thumbs up instead.
8. Ask for contingencies. When you’ve agreed on a sales price, make your offer contingent on the home appraising at that sum, on passing the buyer’s inspection and on you obtaining financing. Work in as much legal wiggle-room as you can so you’ll be able to back out without risking your earnest money should things go sour or another opportunity arise.
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