Buying and Selling a Home

published 31 December 2006

Editor's note: This article appears in Kiplinger's special issue Success With Your Money.

The balance of power has finally swung in the real estate market, with more parity between supply and demand, sellers and buyers. Nationwide, the National Association of Realtors has forecast that prices for existing homes will rise 5% in 2006. That's less than half of 2005's 13% increase, but it's also a return to the historic norm.

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Judging by stories we've heard from sellers in Las Vegas and northern New Jersey, lowering your expectations can be painfully difficult. Sellers often reject their agents' advice to lower their asking price, then find that their property takes longer than expected to sell. Some are also enduring open houses that attract few potential buyers -- or none at all -- or cutting the price more than once before finally getting an offer.

Their second home sold in just one week in 2004, but their third -- a 1,900-square-foot home on a 4,500-square-foot lot -- took three months to sell. They bought it for $260,000 and wanted to list it for $350,000. Engel told them that was unrealistic because of competition from new homes being built in a nearby master-planned community. So the couple started at $330,000 but ended up dropping the price by a couple thousand dollars every few weeks, as the deadline approached to close on the purchase of their next home. When they hit $318,000, they found the right buyers, who liked the location and didn't want to wait for new construction.

Pricing was also a challenge for Jeff and Jackie Wides, formerly of Florham Park, N.J. When the Wideses decided to "pre-retire" to a new home in North Port, Fla., 35 miles south of Sarasota, they expected a quick sale on their home of 22 years. Preparing the house for sale was simple: painting, neatening up and restoring a closet in a den that had been converted from a bedroom. Against their agent's advice, the couple listed their 2,500-square-foot house on an acre of land for $650,000. Nearly five months and three price reductions later, it sold for $580,000. "It turned out the agent knew more about it than we initially thought," says Jeff.

It can be difficult to price a property when recent comparable sales are higher than you can reasonably expect to get for your home. Roberta Murphy, a real estate agent in San Diego, says you have to look not only at the sale price of comparable homes but also at how much time they spent on the market. Keep in mind that houses that are on the market for "too long" can develop a bad reputation, and today's buyers are more clued in to time on the market than in the past. "Buyers often ask about it and construct their offers accordingly," says Murphy.

Murphy recommends using "value range" pricing. If the sellers think their home is worth $600,000 but in reality it might be worth $575,000, Murphy would list the price at $550,000 to $600,000. "It's a soft way to introduce sellers to a reduction, and it gives buyers a range where the offer should come in," she says. Actually, Murphy always uses a number ending in 9's for the low end of the range -- $549,999, not $550,000 -- to improve the chances that the property will be captured by Internet searches.

Don't judge an offer on price alone; other factors may make it worthwhile. For example, a buyer may be willing to rent the house back to you until you're ready to move. Or maybe you've found a buyer who can easily qualify for a mortgage at your price but who will have difficulty coming up with the down payment or closing costs. In that case, a seller contribution might make sense in exchange for a higher price.

Make it stand out. At a minimum, make repairs, clean your house, and get rid of clutter. To compete with new homes in their area, the Olivers landscaped their backyard and put in a sprinkler system. They cleaned the house thoroughly and had it staged to look more like a model home. To make the master bedroom appear bigger, they put in a smaller bed and dressed it with a new comforter and linens to give it a sophisticated look. The couple even stayed with Crystal's mother while the house was for sale because Crystal was working the graveyard shift and they didn't want to put off any prospective buyers.

Is now a good time to buy? Re/Max chairman Dave Liniger gave his four children some advice when they asked if they should buy or wait: "In every case, I advised that it's impossible to time the market -- no one can say accurately what will happen." He recommends that buyers go ahead and buy something if they want to stay in the house for at least five to ten years. "If prices go down, you're not hurt -- you are in the house you want to live in," he says.

That was the goal of Jeff Organ and his wife, Danielle Guildner: a home where they could have a yard, a dog and a family. Their two-bedroom condo in Carlsbad, Cal., didn't fit the bill -- and they didn't want to stay in California. They did some Internet research, then visited a friend in Austin, Tex., which they found to be young, artsy and friendly. "Strangers say 'Hi!' to you," says Jeff. "It's a different mentality."

The couple set out on a tour with a real estate agent, who showed them spacious new homes that they could afford. They put down $8,000 on a 2,700-square-foot house that cost $211,000 and had four bedrooms, 2.5 baths and a yard. Although they negotiated a bit on $30,000 worth of upgrades, they basically paid the asking price. "The builder wasn't in a negotiating mood," says Jeff. And besides, he notes, the price was still half of what they would have had to spend in California.

Housing demand in Austin is rising with the recovery of the tech industry, and the city is attracting baby-boomers looking for affordable places to retire. Last spring, the median home price was $167,200, up 8.5% from the first quarter of 2005. But price hikes have been subdued because builders are busy constructing new homes. That's one reason Danielle found it easy to transfer her job in new-construction lending with Wells Fargo Home Mortgage to Texas. Jeff, a teacher, began teaching in Austin this fall.

Even in cities where prices have cooled, it's not totally a buyers' market -- sellers just have less of an advantage. Competition for homes in some cities remains brisk. Short of moving to a lower-cost state, you're more likely to find a bargain if you're willing to make small compromises -- for example, buying a home that's in less-than-mint condition or one with a less-than-great view or location, or a less-than-premium lot. As the market slows and interest rates rise, you may get a deal on properties owned by investors eager to sell or homeowners who find that they can't tolerate their new adjustable-rate-mortgage payment.

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Esswein joined Kiplinger in May 1984 as director of special publications and managing editor of Kiplinger Books. In 2004, she began covering real estate for Kiplinger's Personal Finance, writing about the housing market, buying and selling a home, getting a mortgage, and home improvement. Prior to joining Kiplinger, Esswein wrote and edited for Empire Sports, a monthly magazine covering sports and recreation in upstate New York. She holds a BA degree from Gustavus Adolphus College, in St. Peter, Minn., and an MA in magazine journalism from the S.I. Newhouse School at Syracuse University.