Wednesday, August 1st, 2007 at 3:24 PM
Buying a Home Today
A reader left this comment:
"We’re looking for our first home and are being hammered by realtors telling us to BUY, BUY, BUY while prices are "down" but it’s obvious they will continue to be "down". most of the homes we like are about 20-30% higher then we want to pay. 2 kids …. … not paying $4,000 a month for a mortgage….. I’ll continue to rent thank you! Rather then take the advice of a greedy sales tactic I feel like waiting a bit may give us the 20-30% drop we need. Am I on the right track?"
If you want to pay 20% to 30% less, you have two choices:
1. Wait.
2. Find the sellers who need to sell bad enough (and have the equity) that they’ll make that kind of deal with you.
There are buyers who will buy today at 20% to 30% less, it’s just hard to find the sellers at that level - almost all of them, and their agents, think by listing high and waiting will produce a lucky sale someday.
Have a good agent help you.
Here’s what I do with buyers these days:
1. Both the buyers and I keep looking for possiblities.
2. When we find one, I check to see how much equity they have.
3. We review comparable sales around it.
4. We use aerial photography to judge location and lot size.
Based on those, we decide if it’s worth pursuing.
If it is, then….
1. I call listing agent and suggest a possible sale price to hear reaction.
2. If it isn’t an absolute no, I go look at the property.
3. I report back to buyers to see if it is worth a trip for them.
4. If they like it, we review the best strategy to obtain it at the right price, and make an offer accordingly.
This approach helps minimize the inconvenience of searching for the real contenders. There is probably only 1 out of 100 sellers who are willing, and able, to price their home aggressively. The rest live in the fantasy of that dreamy ‘lucky-sale’ falling in their lap. But some of those really need to move, and a good agent should be able to help find those motivated sellers, keeping your inconvenience to a minimum.
Posted on Wednesday, August 1st, 2007 at 3:24 PM in Thinking of Buying? | 8 Comments » | 
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Jim,
Thank you so much! I appreciate the great advice. This helps a lot. I enjoy reading your blog. It’s great to see an honest one in the bunch.
Oh and BTW… you totally RULE!
greed-h8ter | August 1st, 2007 at 4:40 pmThanks greed-h8ter, and glad to have you on board.
To add to the post:
Will we ever see the general inventory at 20% to 30% less?
As the new mortgage guidelines sink in, the huyers’ ability to buy is probably reducing 20-30%, but I’m not sure the sellers will get the point. The chances of all the sellers dropping their prices are remote. They’ll just give up instead.
If the inventory was 20-30 percent less, you’d probably still want to buy below that, making my plan the one to work in finding the deals in any market.
Here’s the other plan: If you have time to send lowball offers to every listing agent, then that’ll work too, but it gets old quick when you don’t get many responses.
Jim the Realtor | August 1st, 2007 at 5:09 pmJim, I enjoy your blog and look forward to using your services. I just posted this on BMIT and was curious about your thoughts. I stated that "As everyone who reads these blogs know, the real estate market surge was caused primarily by the speculative investor and easy access to money. Now that the market is no longer performing well from its fabulous ROI days and easy money is unavailable, they are gone and this leaves the buyers as people who are buying a house for shelter. It seems then that we should be looking at affordability and average income to see the stabilization point. The 2004-2005 census says California’s avg income is 51k and change(interestingly down a couple bucks from the 2003-2004 avg.). So how many times income are most Californians willing to accept as a reasonable burden. A Realtor’s website says we are at 10.5 and that is way to high. Here are the links to the census for avg income per state and the NAR for median home price per metropolitan area. You can pick your favorite areas to compare."
http://www.census.gov/hhes/www/income/income05/statemhi2.html
http://www.realtor.org/Research.nsf/files/MSAPRICESF.pdf/$FILE/MSAPRICESF.pdf
psuedo | August 1st, 2007 at 5:25 pmIf you want to sell, now is the time. It’ll get worse, but more importantly, right now, 95%+ of the nine months of inventory isn’t priced realistically.
If you price realistically, you stick out like a sore thumb to catch the attention of potential buyers.
Every month, the prices on the bulk of MLS properties is trickling down, your price will need to be even lower 3 months from now to stick out from the wildebeast herd of homes on the market.
So sell today, because if you can’t afford to lose 20% more equity, you can’t wait for next spring.
No_Such_Reality | August 1st, 2007 at 6:31 pmOn Sharzahds site, there is a report stating that when it comes to housing affordability, San Diego is actually the second worst city in the WORLD, as it requires 10.5 times the annual household income to purchase a house. (number one, by the way, is LA)
Economists say, one should not spend more than 3 times annual household income on a house. By that measure, even if prices dropped 50%, the only "affordable" city in California will be Bakersfield.
Is that depressing, or what?
simone | August 1st, 2007 at 8:51 pmJim, your blog is the BEST – thanks for giving out such valuable information. A few questions about your buying strategy:
How have listing agents responded to 20%-30% below asking price inquiries? Stopped taking your calls, anger, admit that their buyers are overpriced, etc.
Could you successfully implement this strategy representing yourself?
Tom in Cardiff | August 1st, 2007 at 9:06 pmI would hope that with summer on its last leg and fall quickly approaching some folks would at least consider a low-ball offer by years end. We did it on 1 home about 2 months ago and pretty much got a laugh in the face. The home still has not sold and they’ve lowered it 30k since then. I have a hunch some of these $$$$ eaters may have to invest in a good pair of knee pads. It’s going to be a long crawl back! Trouble is… some buyers will no longer be waiting.
greed-h8ter | August 1st, 2007 at 10:46 pmI would like to respond to No-Such-Reality. He is absolutely right about houses sticking out — and selling — when they are priced right. I sold a house in Orange County last fall. It sat on the market for six months (I priced it below what the selling agent suggested, but still stupidly high). I reduced 10% and it was in escrow in a week. The moral to the story: don’t get greedy! If you have the equity as I did, take the hit and still leave with good money in your pocket!
carl | August 2nd, 2007 at 3:18 pm