Travis left this comment at #30 a couple of posts back here:
I purchased my first home without knowing about value aside from recent comps. This time around I am trying to better understand “fair value” using indicators such as price-to-rent ratio. I sense that many in the BubbleInfo audience may also be looking at value in similar way.
Unfortunately, I observe that other buyers are not paying attention to value or have a different metric for determining value because I continue to see sales prices that I consider to be over-valued. If there are a line of buyers willing to pay market price even if over-valued, then as Jim said about the Not Players, those looking for a deal may have to wait a long time or get lucky.
This is what we are all battling.
The least-informed buyers create the market – especially in the Value Buys category.
When the market is hot, buyers get emotionally charged up, and rush into buying before being adequately prepared – and end up paying too much.
In areas where there is enough inventory, a run of these sales can create a trend.
The first few buyers who over-pay could look smarter a year later if the trend takes off, but it’ll be accidental. You want to be more deliberate with your purchase, because that same trend could go the wrong way.
What can you do?
1. Know your target neighborhoods – See the interiors of as many listings as you can. Even if you don’t buy them, the market knowledge gained about recent comps is a big advantage.
2. Take your shots – Make offers on those that interest you, but always at a comfortable price. Leave some gas in the tank too, in case you need to compete with other offerors later.
3. Be comfortable with fix-ups – Plan on spending $25,000 to $50,000 on any house you buy. Very few sellers spruce up their home to sell, and if they do, it’s usually just a cosmetic fly-by. Expect to at least carpet & paint, and there will probably be a few miscellaneous repair items too. If the sellers contribute, terrific (and we’ll fight for that), but if they refuse, don’t be surprised.
4. You are going to lose some – The less-informed will out-bid you on occasion. Shake it off, and get back on the horse.
5. Tie the property up – You don’t need repair quotes or appraisals to make an offer – you have the 17-day investigation period to find out what you are buying.
6. Winning the bidding war – You have to know how much mustard to add, and should rely on your agent for support.
The agent’s role is critical.
A realtor’s job is to: (a) provide an accurate interpretation of the value based on the comps and market conditions, (b) identify the other offers on the table, and (c) size up the listing agent, so we find the way to win – without overpaying.
How much do you offer in order to win?
A good agent should be able to pinpoint that number. Generally, most buyers hit the wall at 5% to 10% over list, so it’s a matter of how bad you want it!
7. Depending on how picky you are, be prepared to search for 3-36 months – Be deliberate and take your time, but don’t hesitate.
Get good help, and best of luck!
Signed, Mr. Mustard