Smart Buying
Back in Balance
How to get the best deal when you buy and the best price when you sell.
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, March 2006
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Home buyers and sellers gearing up for high season are encountering a swing in the balance of power: more parity between supply and demand, sellers and buyers. Last year, home sellers worried about missing out on thousands of dollars in profit if they sold too soon. This year's class frets about how long it will take to get their price. Last year, buyers feared that if they didn't jump into the market, they would miss their chance. Now they wonder how long they should watch prices fall before they make their move.
Higher mortgage rates, especially for popular adjustable-rate loans, and sky-high prices are finally taking their toll. Sales volume has slipped and the supply of existing homes by late fall had risen to its highest level since June 2003. In some cities, including San Diego and Washington, D.C., condo prices are dropping, and buyers are even walking away from their contracts. Homebuilders report that demand is tapering off.
Nationwide, the National Association of Realtors has forecast a 5% price rise for existing homes in 2006. That's less than half of last year's rise of 13%. In some of the hottest markets, the froth in prices will evaporate. Buyers will have more homes to choose from and more bargaining clout -- that is, a return to contracts with contingencies and without escalation clauses. The NAR also expects the number of existing home sales to fall 4% or 5% in 2006 (although that would still make it the second-best year on record).
What this means is that sellers need to lower their expectations. The days are over when you can slap any home on the market and sell it for more than asking price. Now you have to find the pricing sweet spot and work harder to reel in a buyer.
Sellers: Price it right
Judging by stories we've heard from recent sellers in Las Vegas and northern New Jersey, lowering your expectations can be painfully difficult. Many sellers are initially rejecting agents' advice to price their homes lower and finding that their homes are taking longer than expected to sell. They're enduring open houses to which few or no potential buyers come and cutting the price more than once before finally getting an offer.
Among them are the Olivers of Las Vegas. Erik, 32, is a fireman for Clark County, and Crystal, 31, is a metro police dispatcher. Their Vegas roots are strong enough to defy the general trend that their agent, Eileen Engel, describes this way:"People come, people go, but people don't move up in Las Vegas." The Olivers have traded up twice over the past several years.
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 last summer. 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 of thousand dollars every few weeks as the deadline approached to close on the purchase of their next home. At $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 of Florham Park, N.J. When they decided to"pre-retire" to Florida, they expected a quick sale on their home of 22 years. Preparation for the sale was simple: painting, neatening up and restoring a closet in a den 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 in November 2005 for $580,000."It turned out the agent knew more about it than we initially thought," says Jeff, 63. He and Jackie, 57, expect to move into their new home in North Port, Fla., 35 miles south of Sarasota, this summer. Until then, they're renting there.
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 how much comparable homes sold for but also at how much time they spent on the market. In Murphy's market, homes that are priced right sell within 30 days. Keep in mind, too, that houses 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 also uses"value range" pricing. Say you have sellers who think their home is worth $600,000. 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.