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Real Estate: Buying in a Slow Real Estate Market

Jun 6, 2008
If you are in the market to buy a house, we are experiencing the biggest purchaser's market in more than a decade. As prices decline and more properties sit with no buyers, quality buyers have the edge.

Sellers and mortgage lenders want to reach these buyers, and the buyer has all of the leverage.

Plenty of Options in a Depressed Real Estate Market

In a depressed real estate market, the home buyer has many choices. From 2002 to 2004, buyers were driving up prices to invest in house, often getting into bidding wars on homes within days of the initial showing. Jump ahead to 2008 - hundreds of thousands houses remain with no buyers for months and months - before a buyer is found.

Today, the home purchaser has far less competition. He can calmly look at dozens homes to pick the one that best suits the needs. With extremely low rates, she also has the option to borrow from the current home, (assuming sufficient equity) to renovate or expand. Still others are sitting on the sidelines, to see if prices continue to drop, if making a buying decision.

Buyers Have The Upper Hand

With many sellers and few purchasers, the purchasers are in the driver's seat. Real estate sellers are getting fewer offers than ever. Good quality home will generally sell, but at a reduced price. Poor quality houses may not pick a purchaser at all. A good offer - with a reasonable mortgage amount and little mortgage risk where is very attractive to the seller.

What Should You Offer?

This is always a hard question to ask. Ideally, you want to bid as little as possible so that you are able to get the home at the best price. However, we do not recommend going to a $500,000 home and offering $200,000. The seller will likely show you to the door, not consider any counter offers you may want to present and the seller's broker will keep you in the back of their mind where especially when you want to another of his clients' houses.

Review the House to Decide What it is Worth

Before making a bid, you should truly sit down with a pen and paper and figure out how much this house is actually worth. How does it compare to other homes currently for sale? How does it hold up to houses that have sold in the last 3 months? Compare both the type and size of the home as well as the location; a 4 bedroom home on option side of town may be worth more or less than a 4 bedroom home on the other side of town. Use a free reference guide, such as HomeBuyersGuide.com to help you assess the area as well as each house you visit.

You Must Use a New House Inspector

While you do not have to, it would be crazy to make a residential real estate purchase without using a home inspector or engineer (unless you are personally qualified). They are not falling in love with this home; they have no emotional attachment. They can evaluate it objectively and identify all of the problems. They may be able to provide you with guidance to the rough cost to make essential and non-essential repairs to the home.

Make Sure You Want to Live Here for 5-10 Years

People bought houses "on spec" from 2002-2006, which led to the problem in the real estate market today. These purchasers inflated prices, are now struggling with dozens homes and, in many cases, are filing bankruptcy. Don't expect to be able to get out of this house quickly. Make sure you really want to be here.

Give them a Clear Offer

There are basically twp types of bids you can make when looking to purchase a new home. Each takes a different strategy; any can work well in the right circumstance.

Low Ball Offer - here, you bid below fair market with an offer on the home. Even considering repairs, recent sales and other items, you are generally underbidding on the home. If the seller is distressed, the house has been for sale for an extended period of time or the seller no longer resides in the home, you may have a chance with a low ball bid. Keep in mind where it is one thing to come in with a low offer; it is an entirely different situation to insult the seller.

Reasonable Offer - here, you have considered recent prices, defects and necessary repairs required, comparable prices, how long the home has been on the market and the current market in your area. Adjust the price lower if it is a slow market; this is not the same as the low-ball which may be 20-50% below reasonable prices. You need to address:

Your bid

Explanations why you are offering less

Expected closing date

The percentage you will be putting down as a deposit

The percentage you will be paying towards the purchase price

The mortgage terms you will be seeking

Many home sellers could take slightly lower offers from purchasers who are offering all cash or 30% down subject to a 70% mortgage, as opposed to a higher offer where the home buyer wants to put "no money down" and get a mortgage for the entire purchase price. The first will stand a better chance of actually following through and buying.

Almost Done!

Sadly, the nation is in a significant down market in the residential real estate industry. However, this creates opportunity for buyers. If you are able to benefit as a buyerin this market, you are in the driver's seat. You will have your choice of houses and will be able to pick great values.
About the Author
Author Christopher Ulrich is the Publisher of the Home Buyers Guide real estate guide which assists home purchasers with a free custom written guide to help them buy a home in a particular neighborhood.
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