Despite hints and statistics showing a somewhat improved housing market, now is not the time to merely assume that the market is teeming with good deals and that a return to the real estate price spiral will soon cover any mistakes made in the purchase. The market remains sluggish in many areas, and if it remains this way for several more years, the ability to buy your house for less than current market is more important than ever.
The most important moment in the ownership of a home is the purchase. A good deal at purchase can reap big rewards in the future—especially if prices don’t rise appreciably in the near future. You only have one shot at making a good deal, so make it the best you can.
But how do you get the best deal on a home in this market? The same ways you would in any type of market.
1. Buy below current market
Right now a lot of people are mistakenly believing that they’re getting a good deal on a home because they’re paying less for it than they would have two or three years ago. Now I’d rather pay less under any circumstances, but the real issue of getting a good deal isn’t merely paying less than you might have in the past, if less is now the current market. A good deal is paying less than the current market!
Let’s say that homes in a given neighborhood were selling for $250,000 three years ago, but now the typical home is going for $200,000; it’s a better price than it was three years ago, but it’s not necessarily a good deal. The value from three years ago no longer exists. A good deal would be paying something less than $200,000 because that’s the current value. And in most markets paying less than the current market value is very doable, and should be the goal.
2. Buy at peak holiday seasons
Generally speaking, there are two significant annual business troughs in real estate, high summer and the holiday season. In the summer, business tends to tail off after Memorial Day, bottoming out by 4th of July, then slowly rebounding into August. The same situation develops just before Thanksgiving, bottoming out by Christmas, then slowly rebounding after New Years. A lot of people take their vacations during these times or are consumed by non-business activities, such as shopping and the end of the school year.
But what’s bad for real estate sales is good for you as a home buyer. If you wanted to pick THE most perfect weeks of the year to make an offer on a home—and to get the best price doing it—you’d do it either the week before/after 4th of July or the week before/after Christmas. Buy during those weeks, and you may be the only prospect looking at a house, let alone making an offer. And by then, sellers are getting discouraged at the lack of activity on their homes and are more open to negotiating.
3. Buy a house that needs TLC
One of the bedrock rules of buying a home traditionally has been “buy the least expensive house in the most expensive neighborhood”. But as this is a different time and a different generation, buying a “turnkey”—a house you can move into immediately with no renovations—has become the preferred practice. In fact, buying a house that’s turnkey and has the most features—wood floors, granite countertops, wood blinds, premium lighting—is causing people to buy the most expensive house in the neighborhood.
There are three problems with this approach, 1) you’ll always pay the highest price in the neighborhood, 2) many of the features you’re paying top dollar for now will need to be replaced in five to ten years anyway and 3) given the current state of the market, you probably won’t be able to recover the premium price paid on the sale of the house in three to five years, as has been the case in the past.
Get back to buying the least expensive house, even if it suffers from some cosmetic neglect. A fading paint job and an uncut lawn can be your best negotiating tools at buying time.
4. Buy a house that’s been on the market at least six months
No seller is more confident than the one who just put his house on the market. Make an offer on his house and he will most likely want something very close to the asking price. Make an offer on a house that’s been sitting on the market for six months or more and you may find a seller desperate to negotiate—anything to make a sale.
After six months the sellers have been through the gristmill. They’ve probably entertained offers that fell through for one reason or another. They’ve known the anxiety of going for weeks without an offer—or even any lookers. Worse, they’ve had a brush with the hopelessness that comes from having a major asset they can’t sell. That’s your preferred seller! They’ve been beaten down, softened up and they’re ready to make a deal.
5. Find a real estate agent who knows what you want and will work to find it
A good real estate agent is your best friend when you’re in the market for a home, but buyers often take the selection decision too lightly. The agent selected is often a family friend, and just as often someone who just entered the business. But you don’t need a family friend working with you on the largest financial transaction you’ll make–you need an expert.
How do you find one? Ask people who have used agents who it was they used and whether they were satisfied. You should hear the same agents name more than once. Make sure the agent has been working the business for a number of years, and knows the area you want to buy in very well. Test their knowledge—ask questions and carefully gauge the answers: are they technical answers demonstrating a deep knowledge of the market, or are they sales answers designed to get you to move forward? Too much sales jargon indicates an agent who wants a commission more than anything, and that agent isn’t working for you.
6. Avoid buying new construction
Let’s face it, most of us want a house that’s OURS—meaning a house that no one but us have ever owned, and that means brand new. Now multiply that feeling by millions of people and you can see why new homes cost more than existing ones.
When ever you follow the herd, you’ll pay more because that’s where the traffic is. Go where the traffic is lighter—to existing homes—and you’ll find a better deal. One of the reasons you pay more is because new home prices are often pushed up by options, like carpeting, light fixtures and window treatments that are a regular part of existing homes. New homes might feel better—for the first few years, until they aren’t new anymore—but the better deals are on existing ones.
7. Know your market area
Make sure you know the price levels in the area you want to buy in. This is the best way for you to know if you’re getting the best deal or even if your real estate agent knows the market and can adequately represent you. You can drive around the area pulling sales flyers from houses for sale, check with the county hall of records for closed sale prices, or look on real estate websites to see what sellers are asking. Realtor.com is an excellent site that offers perhaps the largest number of listings in most markets.
Keep in mind that what you will be seeing on flyers and websites are asking prices and understand that closing prices—the real market value—is something less.
8. Buy BENEATH your means
Buying something as large as a home is a tense situation to begin with, so it’s vitally important that you remain in control of all that you can. Control equals bargaining power! When you try to buy at the top of your ability—something many real estate agents will try to have you do—you create stress and limit your options. Buying beneath your means keeps you in control of the financing, and that keeps you in control of the deal. As a buyer, you should never be in a more desperate position than the seller, otherwise you may end up paying too much.
Don’t let the current sluggishness of the real estate market lull you into thinking that any deal is a good deal just because sellers are desperate and prices are lower than they were a couple of years ago. Use these tips and make the best deal you can based on the current market.
Have you ever used any of these methods to buy a house? How did they work out for you?