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Bargain Hunting in a Buyers Market

Shopping for a home is work too, especially when there is so much to look at. It’s like wading through a “Clearance Sale” bin as large as an Olympic swimming pool, filled with thousands of blue jeans minus the price tags. You know that if you persevere and find something that fits, you will get a great buy, but without the price tag, you really don’t know how good of a deal you should expect.

Too many home shoppers spend countless hours doing the laborious work of shopping for a home but fail to invest a few minutes thinking about a strategy for buying a home. A haphazard approach to structuring an offer to purchase can negate dozens of hours of research and legwork, because a failed buying attempt may mean that you have to begin the shopping process all over again.

When writing a contract for purchase, many negotiating points are worth considering, but let’s discuss price, since that seems to be at the top of the list for both buyers and sellers. When home shoppers find a home on which they want to make an offer, they can save time and plenty of frustration if they follow two simple rules on how to structure their initial offer.

The first rule in determining an initial offer price is for the buyer to forget how they bought their first or last home, and that there is no rule that the first offer should be X percent below the asking price, nor is taking the asking price and dividing it by the property’s zip code a good strategy in establishing a starting point. Shock and awe may be good strategy for winning a war, but it isn’t a good one for winning with the seller.

The first and most important question to ask is how long the property has been listed. The length of time a seller has been willing to suffer through the inconvenience of having his property listed may give you a peek into the seller’s perception of the current market value and his motivation. If the home has been on the market for a matter of days, it can be safe to assume that the seller may be a little resistant to a low-ball offer.

Time on the market is not necessarily a direct reflection of a seller’s current motivation, because motivation can change. A seller’s motivation can usually be determined by how frequently there have been price changes. It’s rare to find a motivated seller who’s had the same asking price for a long period of time. It’s helpful to know whether the seller is actively looking for the market by systematically adjusting the asking price, or if he is looking for that one buyer who is willing to fall in love with his property and pay what he feels his home is worth.

A buyer should also be aware of the level of activity the home is receiving.The number of showings is not public information, thus it does not have to be disclosed by the listing agent. But you don’t have to be Sherlock Holmes to pick up some obvious clues. For example, if the lines of potential buyers waiting to see the home looks like what you might see just prior to auditions for “American Idol,” chances are the home is priced attractively. This is the case with most bank-owned homes that are coming on the market. These properties are receiving multiple offers, some over asking price.

On the other hand, if you know the home has been on the market for a while, yet there are only three Realtor’s business cards lying on the counter covered with dust, that may mean showings have been as frequent as you get breakfast in bed. Few showings can suggest a pricing problem and/or the seller may be open to more aggressive negotiation.

One of the biggest challenges agents face is convincing buyers that in spite of all the negative news about the real estate market, the homes that represent the best value are selling and the ones with the best prices are selling faster and very close to asking price. Sooner or later, all buyers end up believing us, some initially and the others after they are outbid on a home or two.

This leads us to the second rule. In addition to forgetting what you think you know about structuring an offer, you must also re-define the term “winning.” Winning could mean something intangible, such as buying the home of your dreams or finding one across the street from grandma. Most likely, particularly in today’s market, it means getting a good deal. There’s nothing wrong with that. As long as you don’t define a good deal by how much below asking price you paid for a home.

If one buyer paid 30 percent under the asking price and another buyer paid 10 percent above the asking price on a different property, who got the best deal? It’s impossible to say because the purchase price, relative to asking price, is not what defines a good buy. On the surface a 30 percent reduction from the asking price sounds good, but you may have still paid too much if the home was overpriced from the beginning. Likewise, if you paid over asking price you may have the deal of the century. The purchase price, relative to recent comparable sales, is the best way to determine if your deal is a good one.

So as you wade through the Clearance Sale bins of our real estate market, my advice is that if you find something that fits, it’s probably best to buy it. Because it will be the buyers, not the shoppers, who will end up looking the best.

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