Home buyers should look beyond low prices for long-term values[SIZE=-1]The bad news in today?s housing market could be good news for you if you?re looking to buy a home. In many parts of the country home prices are falling and the inventory of homes for sale is growing?and likely to go higher as rising foreclosures add to the glut of homes on the market.
Single-family home prices dropped 7.7 percent in the first quarter of the year, the largest year-over-year decline since the National Association of Realtors began tracking metropolitan prices in 1979. The median sales price fell to $196,300, down 4.8 percent from the first quarter of 2007. With mortgage rates still at historically low levels?recently hovering around 6.5 percent for a 30-year fixed loan?the stage is set for home buyers to test the market.
But buying in this market is no cakewalk, especially given the challenge of securing a loan in a credit-crunched environment. With the widespread uncertainty over how much farther prices could yet fall, buyers must take extra care to get not just a lower price, but long-term value as well. ?It?s true that today you can buy many properties for less than you could a year or two ago,? says Peter G. Miller, a nationally syndicated real estate columnist and creator of the Web site, OurBroker.com. ?But property you buy still has to make good economic sense. If you?re buying a home in an area where the price of local property has gone down 15 percent, that doesn?t mean it won?t go down further?you could be looking at a false bottom.?
One thing most experts agree on: This type of market is best for longer-term buyers. ?If you?re buying with the idea of selling again in two or three years, you need to be particularly careful,? cautions Steve Casper, owner of Comey and Shepherd Realtors in Wyoming, Ohio. ?We can?t give any kind of assurance you?ll be able to recoup your selling expenses.?
Follow these tips to help secure the best deal you can.
Thoroughly research the area. It?s still true that real estate prices reflect local conditions, and we do mean local: at the neighborhood and community level. So before even beginning your search, scope out the listings for comparable houses in your price range and location. You can find them on Web sites such as Realtor.com, or ask a local real estate agent to do it for you.
In places where homes had meteoric rises in the last few years?as in parts of California and Florida?prices have been susceptible to a downward trend. In other areas, including much of the Carolinas, prices remain strong. You?ll want to find out the number of houses for sale in your chosen area, as well as the number of days houses have stayed on the market. When new inventory is increasing faster than sales, it?s a sign prices have further to fall.
Consider using a buyer?s agent. Though most people use a real-estate agent in their house hunt, brokers receive their commissions from the seller, and are obligated to get the highest sale price they can. A ?buyer?s agent? works exclusively for the buyer, and so has a fiduciary responsibility to negotiate the lowest price possible. Typically a buyer?s agent charges a percentage of the purchase price?usually 3 percent, which comes out of the sales commission of the listing agent?or a flat fee or hourly rate. A buyer?s agent will help locate suitable homes, do the background research that helps in negotiating a fair price, and work out the terms of sale and contract contingencies.
Though there are agents who designate themselves as a buyer?s broker or agent, many also work for the same firms as listing or sales agents do. Their loyalties can be divided, notes Jon Boyd, an Ann Arbor, Mich.-based buyer?s agent who is former president of the National Association of Exclusive Buyer Agents, a professional organization that requires its members work in offices that do not accept listings.
?There are cases now where sellers are offering bonuses to agents who bring in a buyer,? he says. ?But that information is only available to agents?the consumer never really finds out about it.? The NAEBA code of ethics requires the agent to disclose any bonuses up front.
Go beyond pre-qualified to pre-approved. Getting ?pre-qualified? involves a very limited check of your finances, based on the information you supply the lender. Far more valuable is being ?pre-approved? for a loan, which means the lender has independently checked your financial background as well as your credit rating, and has approved you for a specific mortgage amount. To get the best mortgage rate, you?ll have at least a 20 percent down payment and excellent credit. Make sure you?ve checked your own credit reports at least two months before you begin your home search, so you have time to address any errors or negative information that could affect your ability to get the best loan terms. You can obtain one free credit report a year from each of the three major credit bureaus by visiting AnnualCreditReport.com; you can get your FICO credit score and one credit report for $15.95 from myFICO.com.
Gathering information ahead of time is especially crucial for first-time buyers, notes Adorna Carroll, a buyer?s broker with Realty3 Carroll & Agostini/Valley Properties in Connecticut. ?First-timers not infrequently come to the table with credit issues?lower FICO scores and sometimes a blemish on their report that needs an explanation,? she explains. ?The process enables me to work with them and their loan originator to get them into a real buyer?s mode.?
Pre-approvals typically last from 30 to 45 days, but in these swift-changing credit markets it?s wise to check in with your loan originator before you execute a bid. ?The mortgage market is so volatile,? says Judy Andersen, an exclusive buyer?s agent in New City, N.Y. ?I know of a recent case where three days before closing, the bank didn?t fund the loan, and left buyers scrambling to find another.?
Look for leverage. Knowing how long a house has been on the market and why the owner is selling can give you extra bargaining power. ?Sellers? motivation makes a huge difference,? says Andersen. ?If it?s a divorce or relocation, a new baby on the way and they need more space, then you?ve got a highly motivated seller.? (Another common scenario: the seller bought in the last few years and has a mortgage resetting at an unaffordable rate.)
Protect yourself. As the buyer, you write the purchase agreement, so you can include whatever provisions you want. A crucial one: a contingency clause that includes an inspection of the house that is satisfactory to the buyer. Once you have the inspection report, you?ll be able to identify what costs you may face in the next five years, notes Miller.
?Inspections are the most significant deal breaker,? notes Casper. He points out that some purchase agreements give the seller the right to correct any defects found, a version his firm no longer uses. ?Some buyers were getting stuck with what they didn?t want to cure,? he says. ?If there?s a serious foundation problem, you may not want the house under any circumstances; there?s no absolute assurance it will get fixed properly.? In the purchase agreement his firm now uses, ?the buyer has the right to walk if the inspection isn?t satisfactory, and they don?t have to give any reason,? adds Casper.
Remember that even with the deafening drumbeat of falling prices, prices will depend on local market conditions. ?If a property is priced right, and there?s a limited inventory within that dollar range, the buyer has less leverage,? says Carroll. ?It?s the local market that determines who?s under the gun, and it?s not necessarily the seller.??Barbara Bedway
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