Getting a Good Deal When Buying a House

Even in a "buyer's market," sellers don’t budge on price until absolutely forced to, and that takes time. The real estate market doesn’t move quickly like the stock market. Homeowners don’t suddenly move out of their homes at the hint of a downturn. Most ride it out because history has shown that home prices usually correct and begin to rise again. So a buyer’s market usually means more houses to choose from rather than lower prices, at least for awhile.

Forecasting the Market

Forecasting market changes befuddles even the experts. The rest of us can spend our entire lives renting while waiting for just the right moment to jump in. There is never a perfect time to buy, but you can look for certain changes in the market to ascertain if this is an opportune time for you to shop for homes.

Simply put, a “buyer’s market” occurs when the supply of unsold homes and new listings outnumbers available buyers, causing more competition and pressure on sellers to reduce prices. One of the contributing factors to this happens when owning a home becomes much more expensive than renting, causing many buyers to rent rather than purchase. A downward turn in the local economy is another reason. (See negotiation strategies for tips in a buyer's market.)

Conversely, a “seller’s market” is indicated by fewer listings and quick sales. It’s harder to get a good deal when there are multiple offers on the same piece of property. Prices rise according to demand. (See negotiation strategies for tips in a seller's market.)

When buying a home, consider indicators of a continuing strong real estate market. The employment sector in your area may be the best barometer of a stable real estate base. Job creation is crucial, as well as a range of jobs in various industries. Be cautious if you’re looking in a one-company town. Be optimistic if a variety of high-growth industries move into the area. Expect demand for housing to increase.

One of the ways to get a good deal is not for the faint-hearted. While the market is still slow, look for signs of tightening in the rental market. See if there is a little movement in home sales. These are signs the market is about to turn around. Go out there and make some offers. Some sellers may not be able to hold on any longer and may have to sell.

Too Good to Be True

It’s hard to avoid all of those infomercials, books, and ads claiming that you can make a fortune buying up properties in default, foreclosures, or distressed homes. There’s a kernel of truth in everything, but be forewarned that there are armies of scavengers out there looking for good deals. You might be able to take advantage of a distressed situation, if you want to put in the time to do it.

Distressed properties may have physical problems or can be tied up with legal or financial issues. It’s not likely that the costs of straightening out someone else’s nightmare is going to net you a large profit. It might even put you in the hole unless you are a really experienced investor.

Another option is to spend days, months, or years cold-calling people and asking someone if they want to sell their property. Everyone has a price but it’s usually not yours. Add up all of those hours of labor and see if this approach works for you.

Analyzing Comps

“Comps” is short for comparables. It is the principal tool sellers, real estate agents, and appraisers use to assess fair market value. The acronym CMA means Comparative Market Analysis and consists of comparable houses that have recently sold near the home you want to buy. Various factors like location, sale price, age, square footage, and number of bedrooms and bathrooms are considered. A careful analysis of these features gives you an accurate range for negotiating.

Always research your own comps. The seller may have a list of comps that are nearby but may leave out some of the lower priced homes.

Zillow.com provides up to 50 comps for most properties. Go to the Home Details page for the house you are interested in and then go to My Estimator. Choose the homes most similar to the one that interests you. Choose at least six comps. Get as specific as possible.

Tips for Looking at Comps

1. The best comps are in the closest proximity to the home.
2. Only use properties that have already sold. Do not use any homes that are for sale or under contract. The final sales price is the determining factor and you can’t find that out until after the closing.
3. Compare new homes with new homes and existing homes with existing homes.
4. Try to find comparables of a similar age.
5. Use comps that have sold in the past six months. The more recent, the better.
6. Compare square footage and keep comps as similar as possible.
7. If the home is part of a development, look at the comps within the development.

Other considerations may not be so easily defined. Is it walking distance to shops and restaurants? Is it on a busy street? Is the exterior well maintained? A good school district makes the neighborhood much more desirable.

Never make an offer to purchase without doing your homework. You may run into sellers locked into an unreasonable asking price. Despite your protestations and proof to the contrary about the price, they refuse to budge. Move on. They may never sell and you don’t want to overpay.

Buyer's Tip: Remember, a lot of the profit you make on the house is made the day you buy it.

Next article: Home Value by Square Foot

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Related Links

• How to Value a House
• Where to Move?
• Players On the Buyer's Team