Buyers have power, but how much?

March 28, 2011 | Comments Off on Buyers have power, but how much?

March buying advice: Buyers have power, but how much? (© moodboard/Alamy)

There’s no question that it’s a buyers market, with prices continuing to dip in the majority of U.S. metropolitan areas. But how much leverage does that give you in negotiations? That varies widely, depending on where you live, who’s selling and what type of home you’re buying. In this month’s Buying Advice, we look at what some buyers are asking for — and what they’re actually getting at the bargaining table.

Buying strategy: Should you ask for the moon?
With sales sluggish, it’s tempting to make a lowball offer. But are buyers actually getting huge discounts off asking prices? In many cases, yes, says David Welch, of Re/Max 200 Realty in Winter Park, Fla.

One of his clients who was looking to spend $200,000 on a home put in an offer of $190,000 on a property priced $40,000 higher — a large home with new flooring and paint. He didn’t expect much. But the gamble paid off when the sellers, heirs to an estate, took the deal after watching the property languish on the multiple listing service (MLS) for more than 30 days, even after a price reduction.

“They just wanted it to move,” Welch said. “The best advice is, if you like the house, make an offer. It doesn’t hurt to try.”

Of course, just how low you go should depend on sales activity, inventory and prices in your area, says Jessica Riffle Edwards, an agent with Coldwell Banker Sea Coast Realty in Wilmington, N.C.

“You need to back up that offer,” she says. However, Welch says, if comps come back at $150,000 for similar houses in that neighborhood, it can’t hurt to try $140,000, especially if sales are sluggish.

“A few years ago, agents wouldn’t have returned your call,” he says. But today, of course, it’s a different story.

There are exceptions: In many areas, affordable homes and condos are moving briskly as investors and other cash buyers swoop in to snag bargains.

In these niches, there can often be multiple offers on properties, and a buyer may be better off bidding his highest and best offer initially, agents say.

Likewise, homebuilders often won’t budge on asking prices for new homes because doing so would set a lower price for the rest of the development. But many will make up the difference in concessions, such as seller-paid closing costs, free granite countertops, sod and just about anything else a buyer’s heart desires.

Indeed, in some cases, builders are offering things before they are even asked. Welch recalls one couple he represented who asked a new-home salesperson if it was possible to build a pool in that community.

Just minutes after the pair walked out the door to look at another property, Welch got a text from the agent offering to throw in a pool and a fence with the home they looked at, for the same price they were quoted.

The same approach can work with sellers of existing homes, too, Edwards says. If they won’t budge on price, you could ask them to cover closing costs or pay a discount point on the loan to bring down your rate.

Distressed deals
Foreclosure sales accounted for a slightly smaller percentage of home sales last year — 26% of all transactions versus 29% in 2009, according to data firm RealtyTrac.

Even though foreclosures made up a smaller percentage of overall sales, the prices for these properties continued to slide, weighing heavily on the properties around them.

In the fourth quarter of last year, foreclosure sales traded for 28% below the average price for traditional listings, compared with a 27% discount in 2009 and 22% in 2008.

A total of 149,303 foreclosure sales were recorded in the fourth quarter of 2010, down 22% from the previous quarter and down 45% from the fourth quarter of 2009.

RealtyTrac execs blame the slowdown on the expiration of the first-time homebuyers tax credit and some de facto moratoriums on repossessions as banks re-examined their processes after last year’s foreclosure documentation controversy.

The biggest foreclosure discounts — 35% or more off the average transaction price — could be found in 10 states: Ohio, Kentucky, Tennessee, California, Pennsylvania, Illinois, New Jersey, Michigan, Georgia and Wisconsin.

So, where is stability to be found?
We’ve gotten lots of questions here at MSN from people wanting to know which markets are the safest for prospective homebuyers — those with the least immediate risk and most upside potential over the next several years.

We asked the folks at Local Market Monitor to give us their predictions for five of the top havens for buyers — places with a population of more than 200,000 where the immediate outlook is calm and modestly optimistic over the next two years.

Some of their picks may surprise you:

  1. Waco, Texas: Prices here have increased 1% over the past year to an average of $138,906, and are forecast to rise 2% this year and 5% and 6%, respectively, in 2012 and 2013, thanks to comparatively low unemployment and job growth of 2.5%.
  2. Kennewick-Pasco-Richland, Wash.: The Tri-Cities area of southeastern Washington may not be familiar to most people, but it is the state’s most prolific wine-grape growing region. In the past 12 months, jobs in this market have grown 4.9%. And while home prices are relatively low — averaging $161,491 in the fourth quarter of 2010 — they are expected to climb 2% this year, 4% in 2012 and 6% in 2013 as the recovery picks up steam.
  3. Erie, Pa.: This Great Lakes city has fared better than many others in the recession. Unemployment isn’t low, at 8.7%, but job growth here last year was more than double the national average at 1.7%. Buyers here can expect slow and steady growth in prices. The $132,834 average home price is expected to rise 2% annually through 2013.
  4. San Jose-Sunnyvale-Santa Clara, Calif.: Housing in the Silicon Valley is beginning to recover as technology companies rev their hiring engines. Make no mistake: Unemployment is still high, at 10.7%. But it has improved from 11.5% in December 2009, as job growth swelled 1% in the past 12 months. It’s by no means cheap to live in this bucolic but bustling ‘burb. But the average home price of $511,186 is expected to grow by 2% each year between now and 2013.
  5. Lubbock, Texas: This arid Panhandle city, home to Texas Tech University, has something many other markets do not: relatively low unemployment, at 5.8% in December of last year. Employment growth in this city, with its base of agriculture, logistics and oil and gas jobs, was on par with the national average of just under 1%. Its average home price of $137,539 is expected to grow by 2% in each of the next three years.

Those looking for stability should do their homework, says Carolyn Beggs, LMM’s chief operating officer.

“Homebuyers should look at data on employment, job growth, job-sector concentrations and income growth … to get an indication of (a market’s) health.”

The latest sales snapshot
Existing-home sales in the U.S. climbed 5.3% in January from the same time a year ago, according to the National Association of Realtors — the third monthly sales increase. However, the median home price dipped 3.7% to $158,800 from January 2010. Who’s buying? One in four sales went to bargain-hungry investors, and 32% of all sales were all-cash deals.



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