7 Tips For Buying A Home In A Down Market
Prospective buyers have an edge in a down market, but this doesn't mean they are guaranteed to make money on the properties they buy. When real estate sales are slow and there is a glut of homes for sale, buyers have an opportunity to pick up a house on the cheap. The operative word here is "opportunity". There are times when you should pounce and times when you should show restraint and avoid an impulse buy. Knowing the difference could save you thousands of dollars.
Tip No.1: Do Your Homework
Buyers generally have the advantage in a down market, but this doesn't mean you should walk into a transaction blindly. Prospective buyers should search the internet for listings, inquire with a Realtor or real estate agent and check the local newspapers to gain insight on a particular area. Many national and local real estate agents make their listings available on the internet. The objective of this research is to get to know the price range for the area. You want to get a sense of what a low price would be for your desired area.
Tip No.2: Get Your Ducks in a Row
To make sure that you're able to pounce on a deal at a moment's notice, it makes sense to get pre-approved for a mortgage and to have an attorney on retainer to handle the closing paperwork. (To learn more, see Pre-Qualified Vs. Pre-Approved - What's The Difference? and The Benefits Of Using A Real Estate Attorney.)
It also makes sense to line up a home inspector and an insurance agent. These professionals can provide valuable information to the buyer about what parts of the home might need repairs and what it will cost to insure.
Tip No.3: Watch For Motivated Sellers
Motivated sellers provide additional bargaining power for potential buyers. If the home has been on the market for several months, has undergone several price reductions, and/or is vacant, this suggests the seller is looking to sell as soon as possible. In situations like this, it makes sense to ask whether the seller will throw in any furniture or fixtures that you like. You can also ask the seller to cover closing costs, whether in full or in part. Of course, the listing price is always negotiable as well.
Tip No.4: Negotiate With the Realtor
When houses are selling at a slow pace, many Realtors are also struggling. In such an environment, both agents and firms may be more inclined to knock a percentage point or two off of their commission schedules to get a deal done.
Because it is the seller's job to pay the Realtor, you may wonder why you should care about commission. The bottom line is that the commission is still part of the price. Ask your real estate agent to inquire about reducing it; this could mean not only a better deal for you, but it may also facilitate the deal from the seller's perspective.
Tip No.5: Make Sure You Have Clear Title
During trying economic times, sellers may be looking to unload their homes because they are in over their heads. In some cases, the property may be encumbered by a lien from a contractor, service provider, bank or other lending institution. For this reason, it always makes sense to use a title insurance company and have a lawyer perform a title search to make sure that there are no liens and the property can be transferred. The last thing you want is to have to absorb any of those liabilities.
Although lenders typically require title insurance and a title search if a mortgage is going to be taken out on the home, cash buyers should use these services as well.
Tip No.6: Avoid a Bidding War
When you are shopping in a down market the last thing you want to do is let your emotions get the best of you. A bidding war is almost always an unnecessary waste of time and, in the end, a waste of money. Down markets are all about getting a really good deal, so to fritter away that possibility on an ego-driven desire to win is foolish.
The best advice for avoiding a bidding war is to set a price limit and stick to it. Remember, there are plenty of homes out there and other deals to be had.
Tip No.7: Don't Be Afraid To Walk Away
Real estate prices usually drop as inventory increases. In a down market, there are always many choices available. If you are not getting the deal you and your Realtor feel you deserve, do not be afraid to walk away, and look at the next home on your list. Remember that in a down market, it is you - the buyer - that has the power. Some sellers refuse to understand that the market is down, and will not accept any offers less that what they feel their home is worth.
Stick to the price you had initially decided the home was worth; if you cannot make the deal, try again next time.
To learn more, check out Smart Real Estate Transactions.