So now that Puget Sound counties have been in a “buyer’s market” for around a year, there are probably some good deals to be found out there. But how do you find them?
To be clear, my personal opinion is that we’re still in for another year or two of declining prices. However, I’m sure there are some that see the drop we’ve had so far as “good enough,” and just want to buy a home now even if prices drop further. If that’s you, here are a few suggestions of how to start.
Look for houses that have been owned for a long time. Sellers that bought their house in the last 4-5 years are likely to have unrealistic expectations of price appreciation, while someone that bought in the pre-bubble years is more likely to accept a price that reflects 3-5% yearly appreciation. The bigger the equity cushion the seller is sitting on, the lower they can afford to drop their price.
Look in the weakest neighborhoods. The NWMLS publishes “neighborhood” data for King, Pierce, and Snohomish counties. You can also spend some time looking on Redfin, where they are now publishing nifty stats by city, neighborhood or zip code (full details on this post).
Look for houses that have been on the market longer. This one’s pretty obvious, but a lot of “casual” buyers tend to write off homes that have been on the market for a long time, even if they’ve had significant price reductions. Especially with the NWMLS recently allowing cumulative days on market (CDOM) to be published on public sites, it is difficult for a seller to escape the stigma of being on the market for a long time. If they really need to sell, they’re likely to take a lower offer.
If you are using an agent, be upfront about what you’re looking for. Some agents are happy to help you make lowball offers on as many properties as you want, but others will consider such a buyer to be a waste of their time. It’s better for both of you that you be forthcoming at the start about what you’ll be asking them to do. This goes for discount brokers like Redfin, too.
Those are some basic strategies I would use if I were actively in the market right now. What tactics would you suggest? What about those of you that are out there now or have recently bought? How are you finding good deals in what is still largely an overpriced market?
Jump to the bottom to add your comment. ↓
75 responses so far ↓
1
Niuska
// Sep 2, 2008 at 1:12 pm
I am looking for bank owned properties that need work. Those appear to be the best discounts on the market.
2
softwarengineer
// Sep 2, 2008 at 1:19 pm
BANK OWNED PROPERTIES
That sounds like a good graph to plot Tim, like what stock increase and at what rate per year.
3
jon
// Sep 2, 2008 at 1:20 pm
“Look in the weakest neighborhoods.”
The drop from the peak shows that lower priced homes are the riskiest part of the market. You can get more house for your money, but you will also have problems selling it. Even if you are not worried about reselling, then why buy and live in a house in an unpleasant neighborhood? Depending on your budget, your options may be limited, but if you have a choice, I don’t think that the choice of neighborhood is the place to save. It’s a lot cheaper to fix the house than the neighborhood.
4
Sniglet
// Sep 2, 2008 at 1:24 pm
While it’s certainly wise to try and get as good a deal as you can when buying a house, I would argue that there is no such thing as a good deal to be had in the Puget Sound at this point. We are facing a good 50% drop in median prices (from peak) before all is said and done (just show me a Puget Sound property that could be purchased today for the same price as renting the same place). The decline has barely even begun.
That said, I think it is fine for people to buy, to enjoy the benefits of home-ownership (e.g. having pets, the security of staying in the same place for a long time, etc). Just be sure that it wouldn’t significantly impact you financially if the house you buy in September 2008 were to drop 50% in value by the end of 2011.
5
vboring
// Sep 2, 2008 at 1:42 pm
if you make an offer on a property and get no response, give them a few weeks, then make the same offer again.
otherwise, you might do the work to wear somebody down to accept a lower price, but then they actually sell it to somebody else, possibly for less than your offer.
6
Eleua
// Sep 2, 2008 at 1:44 pm
The big drop will come when the banks are forced to cough-up their REO. This will likely happen either as or after a systemic banking failure presents itself. Don’t worry, it will be the biggest story of the decade when it happens.
A stock market crash would likely precipitate this.
Patience. Don’t chase the house. Let the house come to you.
7
Bella
// Sep 2, 2008 at 1:55 pm
It depends on how you define “good deal”. I’ve been watching for about 9 months now, and when I actually started going out and looking at some of the listings, I found that anything under $400k (which is a lot of $$ to me) may very well be a total dump, or tiny, or both.
Since the bailout happened, hardly any new listings have come on the market. The few that have are totally crappy looking.
Also, it doesn’t seem to matter how good the deals are right now, it is super hard to get financing right now. We were supposed to be pre-approved when we found a house we wanted to buy in July, but from what I (don’t really) understand, since the bailout happened (after we started the process) the bank wouldn’t give that loan anymore, so we had to start over again. 6 weeks later, even after having coughed up a lot more cash to put down, we are still waiting to find out if our loan will go through.
So I guess if you have tons of cash lying around to make a huge downpayment (because 20% of even a cheapcheap $300k is still $60k, which seems like a lot of moolah) on a piece of crap, there you go.
Even if you jump up to a higher price range, it doesn’t seem like you are getting that much more for your money. To me, they all look like the same houses as you’d get for $300k, but someone slapped some “designer” color paint on, and rounded up some stainless steel appliances that maybe some poor saps wouldn’t know only cost a couple thousand altogether, and for that you will pay maybe $200k more?
8
Sniglet
// Sep 2, 2008 at 2:14 pm
So true… People buying a tech stock for $60 that had previously been at $100 in 2001 were certainly getting a better than at the peak price. However, that same stock may have went on to drop to $5 or $10, making that $60 purchase price seem like a rip-off. There is no point in getting excited about a Puget Sound home listed for 10% less than it’s 2006 sale price. maybe when it is 60% or 70% off of the peak one can start to think this is a “good” deal.
I repeat, however, that you shouldn’t let economics drive your house purchasing decision. If you find a home you love today, then go ahead and buy it. Just make sure that you are financially and psychologically able to withstand a 50% price drop sometime over the next 4 or 5 years. Why should it matter to you if your house is worth less than half of what you paid for it if you are able to keep making mortgage payments, and enjoy living there?
9
Sniglet
// Sep 2, 2008 at 2:18 pm
I completely agree. We are going to see some huge bank failures and a massive stock decline (with the Dow well below 9000) before house prices seriously begin to decline. However, the real-estate crash likely won’t be far behind the stock melt-down and bank failure(s). Lending standards will be SO tight at this point that we will only be able to dream about how easy it was to get mortgages in September 2008. Not that anyone will be much in a mood for buying, since everyone will be scared silly about future price declines.
10
jesse
// Sep 2, 2008 at 2:40 pm
“If you are using an agent, be upfront about what you’re looking for.”
Great point though it may well be that your price point is not yet realistic. You need to find an agent prepared for the eventuality that you may buy nothing if the price isn’t right.
11
Rhonda Porter
// Sep 2, 2008 at 2:51 pm
I especially liked your tip on being upfront with your agent. You may want to interview a couple to make sure your personalities are suited for each other and that they will be okay with lower offers and with being patient. Some may expect you to select a home after viewing a handful…others will be more hands off.
Finding a home with an agent is only one a part of the phase of a RE transaction, you also have to get through closing and what ever else may pop up with inspections, the sellers, etc.
12
Bella
// Sep 2, 2008 at 2:52 pm
@8 sniglet
That is why when we found the house we are trying to buy, we went ahead and tried.
We really could give a crap about how much it is worth in 3 years. We intend to live there for 15-20 or more. But - if our financing doesn’t work out because you can only get an FHA loan right now, and they are being really tight, there isn’t anything out there in the area we want to buy in that I would even remotely buy, much less consider a “deal”. I look every day, and everything else sucks. Especially anything that is less than what we are trying to buy (and there’s hardly anything).
13
Notabull
// Sep 2, 2008 at 3:19 pm
“Look in the weakest neighborhoods.”
I would be very careful with this as it’s a double edged sword. The weakest areas are often weakest because they went up further (too much) and not *necessarily* because they are simply ahead of the curve on the way down.
If Snoqualmie Ridge is one of the weakest neighborhoods right now, then is that where I should look?
14
alex
// Sep 2, 2008 at 3:42 pm
I like the advice @5 from vboring, about re-making the “too low” offer every once in a while.
I’d like to see one of the RE guys/gals comment on this, however… when the rejected offer comes unchanged 30 days later, are you more likely to sound like:
a) “hey friend, I’m still here in case you changed your mind”;
b) “bzzzzt! another mosquito bite to upset you, loser - and by the way, la la la, you just had to make another mortgage payment!”
15
The MD
// Sep 2, 2008 at 4:22 pm
Sniglet, whoever you are, you’re 100% correct in your assessments of the market. Puget Sound region will probably see a 50% decline in peak prices from the “appreciation” they have seen. This, and I say it again, is just getting started. There will be absolutely no upswing in the market for a minimum of two years and possible up to FIVE!
16
Charles Dean
// Sep 2, 2008 at 4:33 pm
As an agent I’ve found that those clients I have had who are only interested in making low ball offers are often times not serious about buying a house to live in, but are just looking at dollar signs.
I’ve spent over a year working with some clients and written 1/2 dozen offers for them. All of them were negotiated pretty strongly and they normally ended up getting what they wanted at the price they wanted and ended up with a great deal and a great home.
However, I have also had other clients who wanted to do the “send out 10 lowball offers and see what happens”. In these cases, they are again only looking at dollar signs and not interested in finding a home. The people that I have worked with who have this sort of an attitute towards homebuying will typically back out of the deal after inspection because they want to negotiate heavily again on inspection, or they get cold feet easily, or any number if inane reasons.
I know personally that I always will do what my clients ask of me and will negotiate accordingly. However I always give my direction on any negotiations and make sure that my clients know whether or not I think something will work.
For instance, I recently wrote an offer for a client that I’d shown a number of places to. He was looking for a great deal and we found one. Short sale fixerr that had already been negotiated with the bank for $264k that was priced easily 60k below market and needed about $15k worth of work to make it worth $370k-380k. So really a screaming deal, but it was a great deal because it had to be closed quickly as foreclosure was coming in a couple of weeks.
He wanted to come in with an offer of $230k. I wrote the offer, but told him I thought that the chances of this offer being accepted as it was was slim to none. Still, I presented it in person to the listing agent. Counter came back a little lower than the original listing price and word from the LA that the bank wouldn’t go any lower than that.
My client came back and said that if they wouldn’t take his initial offer, that he wasn’t interested. Sure enough, the place sold a day later for the original listing price because it was a good deal.
After that, i chose not to work with him again, because I knew that it would be alot more of the same and that eventually we would both get frustrated with the process because he had unrealistic expectations about what he could get.
So, long story short making sure that you’re upfront with your agent and that in turn they are upfront with you about how hard they will work for you is very important. If you’re using an agent of course.
So, long winded message over, I agree with notabull about the weakest neighborhoods. Often times they are weakest because they are the least desireable and they may actually end up dropping even further because of that. Or, they may have a number of foreclosures in them which also drives down the prices unnaturally compared to other neighborhoods.
Another thing to consider is short sales. There are a ton of them out there, but they are a pain in the ass, and are not always great deals. Sometimes it takes the bank months to respond to an offer and there’s no guarantee that they’ll take it. So you could be sitting and waiting on an answer for 60 days while there’s other great deals to be had. So if a short sale isn’t already negotiated with the bank, you may want to avoid it.
17
Charles Dean
// Sep 2, 2008 at 4:38 pm
Also, if you are looking at making low offers on homes that are out there, it’s important to remember that you’re going to have to have alot of patience yourself.
The bargain shopper at Macy’s may get the cheapest “best” deal, however they may not get what they really want, or they have to wait 6 months for that coat to go on sale before it’s at the price that they want to pay. And even then, it may never go on sale because it’s the coat that everyone wants and they end up selling out before the sale happens.
18
Greg Perry
// Sep 2, 2008 at 4:44 pm
Be so very careful to keep your future resale in mind. Sometimes the “good deal” ends up being a nightmare. That house on the main arterial or under the power lines (economic obsolescence) or the screwy floor plan (functional obsolescence) may in fact have a 1. long market time, 2. be owned for a long time and 3. be in a weak neighborhood. And for goodness sake, buy a house you’ll be happy living in.
If you have plenty of time to negotiate, long negotiations that involve re-submitting rejected offers often work — and work very, very well (re. comment #5)
19
Ron
// Sep 2, 2008 at 4:44 pm
Found a Property up by Millcreek.. PreForclosure..
228,000. Townhome
1900 sf… really nice 2 car Garage-. 3 Bedrooms- 2.5 Bath.. Roughly 5 years old- appears quite a few there cant afford the Payments, quite a few up for sale.. the others are asking over 100,000. for the same Identicle units..
The person apparently gotten in the loan in the early 2007 time frame… now cant make payments, Short sale Preforclosure… the persons loan was something like 340,000.
These numbers actually work.. rent 2 rooms out for 5-600. …. move into the master.. payments would be about 1,500. home association is I believe 200. dollars..
20
Charles Dean
// Sep 2, 2008 at 4:52 pm
Ron, I’d be willing to bet that that short sale hasn’t been approved by the bank yet. What i’m seeing alot of right now is agents listing a house well below market, because at or just below market will still be a short sale. So they list it ridiculously low to get alot of activity. Then just hope that the bank might take the offer.
So yeah, sounds like it’d be a great deal if the bank would allow it to be sold for that amount.
21
Ron
// Sep 2, 2008 at 4:56 pm
I thought About that… myself..
Willing to bet next year.. there will be lots more motivation…
22
alex
// Sep 2, 2008 at 5:01 pm
Charles, that’s really great input, I appreciate it.
23
Ira Sacharoff
// Sep 2, 2008 at 7:18 pm
I’ll second what Charles said about some agents pricing short sales lower than what the bank will approve. I’ve seen a couple with ridiculously low asking price, simply in order to manipulate and create some buzz, elicit over asking price offers.
At the risk of sounding like a New Age Zen real estate huckster, I’d advise sticking to one’s guns and remaining flexible. What I mean is: You have to figure out what is most important. For example, if you want to find a 3 bedroom 2 bath home in Bellevue for under 450,000 dollars, don’t budge, hold your ground, be patient. Good things come to those who wait. On the other hand, look at “weak” neighborhoods, go visit, see how it feels. Explore places you would not ordinarily consider. Doesn’t mean you have to fall in love with Burien or Kent , but don’t simply dismiss a place out of hand because someone told you it was “ghetto”. Find a restaurant there, go for a walk…And find places that are already listed at prices that are lower than comparables…I’m guessing we’ll also see a large increase in REO property.
24
EconE
// Sep 2, 2008 at 7:54 pm
Great post Tim. Good feedback from Charles, Greg and Ira also.
I agree completely with regards to not throwing out multiple lowball offers on numerous houses as it really just wastes a Realtors time as Charles mentions. Find the home that works for you. It’s much easier now with sites such as Redfin to at least get an idea of what you want with regards to location, home style and price.
Personally, what I have seen while following the market in L.A. is that homes that have been owned for a long time are the ones that are selling. And they are selling for a healthy discount compared to the people that are asking for a dream price. Many are still being purchased by flippers so buyers need to be on their toes when the long owned homes come on the market.
Don’t be afraid of a cosmetic fixer, but make sure that the house has “good bones”. With some weekend “sweat equity” you can ultimately turn that “fixer” into something that fits your style. When I restored a house I took some of the classes at Home Depot. You’ll be surprised at how easy laying tile and hardwoods, changing out dated fixtures, and adding a coat of paint can actually be. You can even rent the specialty tools if needed.
With regards to “lowball” offers. I’d like to pose the question to the Realtors on board here as to what would constitute as a lowball offer. I’ve seen some listings that 10%-15% off would be acceptable (to me) but if I were to make an offer in that range, I wouldn’t want to negotiate. When I sold my house, I didn’t negotiate with the offer I received as I just don’t like to “haggle” as I’m a take it or leave it type of person. It was the same way when I originally bought. Both times the difference between asking and agreed upon price was in the neighborhood of 10%-15%…and that was in a rising market, although it was in a “non”-bubble state.
20% off listed price to me would be a lowball for a homeowner and I’d expect to have to be willing to negotiate up to 10-15% off, but IMHO 20% off would perfectly reasonable for an REO and I’d stand firm on my offer.
25
Jillayne Schlicke
// Sep 2, 2008 at 8:00 pm
“There will be absolutely no upswing in the market for a minimum of two years and possible up to FIVE!”
Hey MD, it’s good to know I’m not the only one going long. I’m on record as predicting it will be a good 7 years before this whole mess unwinds and we’re now almost finished with year 2.
My advice is this:
Find a short sale where the underlying lender is INDYMAC.
Hey, Sheila is pushing loan mods left and right; I’ll bet they’ll take just about anything at this point from a bonafide purchaser.
I also hear that Countrywide is motivated to take decent short sale offers as well.
In terms of working with buyers who want to make many lowball offers, sometimes we forget that this strategy could be cultural. Many different cultures teach patience and strategy. I have met many, many immigrants who are carefully watching the Seattle real estate market and studying seller motivation. None that I’ve met have decided to buy just yet. Interesting. I realize I am blatantly stereotyping and I admit it.
26
Eastsider
// Sep 2, 2008 at 8:04 pm
Buy one of the flops listed at http://seattlebubble.com/forum/viewtopic.php?f=1&t=1434 and lower the comps for everyone else :-)
27
The MD
// Sep 2, 2008 at 8:19 pm
Jillayne, well, we’re both on the same page! I honestly cannot believe people think we’re almost through this mess with a friggin’ adjustment of less than 7%. HA! That’s nothing at all in the larger scope of the market. I’m talking HUGE market adjustments will ensue over the course of the next few years. Things will get a LOT worse before they even begin to get better. SEATTLE LAGS NATIONAL ECONOMIC TRENDS!!!!! Perhaps it has something to do with the sense of entitlement Seattlleites have, or the fact the Puget Sound ares is extremely “provencal.” Well, buckle up, folks, we’re in for a LONG ride in this region in particular. When the median home prices to salary return to a 4 to 1 ratio (the region on a whole), we’ll start to see an upswing again. Declining markets are much like a snowball - it will start off slow, and then as inventory grows, sales slow, and sellers start to come to hard truths, prices will begin to decline more rapidly. I “suspect” we’ll be at about a 9-11%% YOY price decline by this time next year.
28
jonness
// Sep 2, 2008 at 8:27 pm
My advice is to figure out how much extra you can save a month if you continue renting. Then take a look at this chart and ask yourself, if San Diego were Seattle, would you feel OK if you bought 2 or 3 quarters into the drop. If so, then, as others have recommended, perhaps look for a good deal on an REO. But don’t buy just because it is a good deal–make certain you are in love with the house. If you’re not in love with the house, continue to save a downpayment and let prices depreciate until you can find a house you’re in love with. The longer you wait, the more in the driver’s seat you become, and the better house you will find for the money. Just be certain you are saving a downpayment at a healthy rate while you wait. IMO, a house is both a place to live and an investment, so don’t short change either of those qualities.
29
jonness
// Sep 2, 2008 at 9:11 pm
Prime mortgage foreclosures have moved ahead of subprime foreclosures. Holding onto a rapidly depreciating highly-leveraged asset does not make good financial sense when you’re heading into a severely protracted recession. So this comes as no surprise. The markets are driven by greed and fear. We’ve seen the greed, and now we are experiencing the fear.
What’s next? IMO, a major bank failure will drive the country further into the fear zone. The government will act swiftly to amputate the limb. Consumers will continue to lose confidence in the economy, and house prices will continue to correct toward historic income:home price ratios.
30
Ray Pepper
// Sep 2, 2008 at 9:13 pm
For ECON-E…………………….”Low Ball Offers”
Since I primarily work with Buyers here and in Nevada its relatively easy if the Listing Agent “spills the beans” and many do. AHHH Yes fiduciary responsibility…..It goes like this at 500 Realty….Home is Listed at 425k
“I have a pre Approved Buyer that has shown interest in your home. They are gravely concerned about market conditions and I have a list of COMPS (provided by the Buyer) that will support their offer. Will your seller look at offers in the 300’s? Have any offers been rejected?
After I get my analysis of responses from the Listing Agent I report it to the Buyer. Sometimes I get…”Ray just submit your offer like everyone else”..But, many times I get ” Ray …Come on the Buyers already rejected 350k…BAMM once I have that then I ask will they take 360k…Then the Agent usually starts to Blab…… But, every now and then I get…”Oh please Ray just submit anything”. then I reiterate to the Agent, ” Will they look at 300k-320k (notice its the very low end of the spectrum). I advise the Agent I don’t want to waste alot of their time and reiterate the financial stability of my client and ability to close ON TIME. Furthermore I state my buyers are adamant about being WELL UNDER 350k. I then advise Buyers of what I believe will work. This is all done with phone calls and emails. We write up offers when we know we are close…
So Econ E what I tell you is if you to choose an Agent find one who has been an investor first. There are many. When your Agent is saavy they will be GEMLIKE! Be ready to walk and find another home. Every Buyer I have worked with was always happy they waited to find their next GEM. There will always be another. ALWAYS!
Now what happens when I’m the Listing Agent? Ahhh Easy Answer. I advise all Buyers and Agents to CALL THE SELLER and ask. Imagine that…What a concept!
Friends Real Estate will be conducted far differently in the next decade and I cannot wait!
31
Scotsman
// Sep 2, 2008 at 9:23 pm
Sit tight. Use your heads. Remember all the discussions we’ve had about the variance between rental costs and purchase costs. We’re not anywhere near the bottom yet, and purchasing now can put your future financial security at risk. The world and national economic structures haven’t even begun to really unwind yet…. but they will. And when they do, house prices will fall significantly and stay low for a decade or more. As an economist with a background in econometrics and modeling, I can tell you that the math doesn’t lie, it doesn’t respond to spin, and it (reality) will come to pass in the end. The end of this story is already written. At this point we’ re just reading the middle chapters, wondering what happens next. But the math has set the limits on possible outcomes, and it isn’t going to change. Wait to buy.
32
The MD
// Sep 2, 2008 at 9:32 pm
Scottsman, WELL PUT! Only, I think we’re only more like 1/5 into the saga of chapters - not to the middle quite yet.
33
Ray Pepper
// Sep 2, 2008 at 9:38 pm
I disagree. Scotsman. Always look. There are always sellers who MUST sell at any given time. MLS# 28041693 is an exp. Listed at 735k. then dropped to 549k. Now Pending…Just one of many homes I have been tracking…The Agents notes state “Seller encourages a reasonable offer”….. I still say 549k is too high. But the seller owes 480k so were nearing the break even. It’s crucial to always know what the seller owes. All part of making a “rational” LOW BALL offer.
34
Scotsman
// Sep 2, 2008 at 10:12 pm
Ray, even if you get it for $460K it’s not a gem if three years from now you can’t sell it for $375K. A lot of tech stocks looked like a great buy in June of 2000, and today they don’t even exist.
We are entering unprecedented territory economically. That means the past is of no value in predicting the future. But one can look at the balance sheets of various banks and industry leaders, look at the balance sheets of American consumers, look at the budgets and future revenues and commitments of various governments and come up with a group of most likely scenarios for how and where the money has to flow. In these scenarios there’s very little wiggle room for long term solutions. Companies have to be profitable, banks have to lend at certain rates to survive, consumers can only pay so much for housing, food, etc.
The end result is we’re heading for a significant economic contraction, worldwide as well as in the U.S. You can call it a severe recession or a weak depression, but it is coming. It will take a long time to correct. And it will drive house prices everywhere significantly lower than they are today. You might think you’ve found a GEM or two by turning over a rock here and there, but soon enough they will be scattered all over the open ground. I wish it wasn’t so, but that won’t change it, for me or for you.
35
Sniglet
// Sep 2, 2008 at 10:29 pm
Correct. Even if you get a screaming deal today, buying a Bellevue home for 15% than current market value, all that equity will have more than vanished by this time next year. So, unless you are looking at flipping quickly, there is just no way to make money investing in Puget Sound real-estate today.
36
Charles Dean
// Sep 2, 2008 at 11:22 pm
Good advice as well Ray. Knowing how much they owe on both their 1st and 2nd, then being able to calculate what the break even point is pretty important as well.
Also being able to milk the listing agent for info is pretty easy. Especially in this market. Everyone is so desperate just to see one offer that they’ll give away the farm if they smell a contract.
37
Sniglet
// Sep 2, 2008 at 11:46 pm
Hardly. There are virtually NO properties in the Puget Sound that can be had for even 30% off of peak prices let alone the 50% plus declines we will see in the coming years. The simple fact is that there is no such thing as a good deal in the Puget Sound market today. If you are looking for a real bargain just be patient and wait a couple years to see the real deals start to come out of the woodwork.
38
Buceri
// Sep 3, 2008 at 4:52 am
Ray - $549K is an outrageous amount of money.
Redfin already shows quite a few properties in Snohomish for about $150-$160 /sq.ft. Should continue to go down to $120/sq.ft.
39
3rd Generation
// Sep 3, 2008 at 5:43 am
The NAR shills and local real estate used-house cartel continue their dirty propoganda campaign…
NOW could be the worst time ever to buy any real estate at any price, EVER.
but you greedy sheep better rush right out and trust your financial future to someone who “earns” a living grifting 6% sales rake offs.
The notion of this gratuitous notion is just flawed. Shame.
40
Garth
// Sep 3, 2008 at 7:27 am
If you are looking in-city I would be real careful with the “weakest neighborhoods” and REO, foreclosures and as-is properties. If you have never bought this kind of property before, I wouldn’t do it for the first time in today’s environment. There is currently not a great enough savings from more liquid properties to justify the risk.
41
david losh
// Sep 3, 2008 at 8:14 am
It’s not when you buy it’s what you buy. Some properties on the market today are 50% off peak pricing if you do the math. There are thousands of properties on the market, or expired, cancelled, for sale by owner, or rented waiting for the market to come back.
There’s a deal a day in Real Estate. If you want to compare to the stock market, then yes there are good performing stocks for sale on any given day. The question is if you know what to buy.
Buyer’s come in with a list of internet generated houses for sale that is a wish list. The numbers are the numbers. That’s it. The deal makes sense or it doesn’t. The buyer is a package of economic factors. The property either has value or it is a waste of your future dollars.
You need to buy a location in order to get value for your future dollars. Views, water front, proximity to amenities, even areas of future development that makes sense all contribute to future value.
There are a lot of factors. If making low offers is the point then robfun is the best option, I think that’s what the company is good for. It’s highest and best use is for people who want to generate low ball offers and keep submitting them.
Now you’re going to love this but, if you want today’s deal you need and Real Estate agent who is involved in the business of Real Estate investing. Don’t go to aunt Donna’s friend who has a Real Estate license, go to a professional.
Ray’s scenario is perfect. The search for the property needs to be thorough, but a professional agent in the area you want to be can make you money.
I’ll repeat about an agent in the business of Real Estate investing. It’s different. Some agents are actively buying today. They can’t buy everything. There is plenty to choose from. Find them. Find the agents buying today. Find the agents that are invested in the Real Estate business. Then listen to what they have to say.
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Sniglet
// Sep 3, 2008 at 8:49 am
I would have to disagree with this. There are times when virtually ALL stocks are overvalued. I can’t even think of a single stock in January 2000 that hadn’t fallen significantly by September 2002.
Certainly it is absolutely true that there are times where there a large percentage of stocks are either under or over valued. Even Warren Buffett has said there are times where the smart thing is just to stay out of the market.
Of course, this is NOT to say you shouldn’t buy a home during a time when the majority of homes are over-priced. So long as you can make the payments why should it matter to you if your home dropped 50% in value several years after you bought it?
43
Ira Sacharoff
// Sep 3, 2008 at 9:44 am
“I would have to disagree with this. There are times when virtually ALL stocks are overvalued. I can’t even think of a single stock in January 2000 that hadn’t fallen significantly by September 2002.”
I’m guessing that between NAQDAQ and the NYSE, there were probably 100+ stocks that were up during that period. A tiny minority, sure, and how to find them beforehand, sure, but I’d wager a breakfast that there were at least 100 stocks that were up in that period.
44
Markor
// Sep 3, 2008 at 11:14 am
There was a small explosion of listings in my old Issaquah neighborhood soon after I sold my house there this last winter. They all want peak prices, so of course none have sold. Most have substantial equity even at today’s fair market prices. What they are thinking I have no idea.
45
cheapseats
// Sep 3, 2008 at 11:24 am
In reference to finding a realtor who was/is also a RE investor, that sounds great and all, but when I first moved here and was looking, I had a realtor who was also an investor. I couldn’t help feel that I was finding good deals that he was more interested in than he should have been. I know a good realtor can’t do x, y, z. But if I have a realtor who is also buying properties for himself, or leads partners to a property, it makes me less than comfortable. I would rather just avoid the scenario…
46
Markor
// Sep 3, 2008 at 11:27 am
A flipper in my Bellevue neighborhood has had his/her potential profit reduced from ~$50K to ~$20K since spring, I estimate, due to several substantial price drops nearby. The houses aren’t selling at the new prices either.
47
Civil Servant
// Sep 3, 2008 at 11:31 am
Agree about the possible discomfort factor. To Ray and David, thanks for your candid comments above — you describe options that had never occurred to me and that on the face provide a clear value proposition. But what if I ended up competing against my investor-agent? If that person and I both want exactly the same thing — the most future value for the least current dollars — then it’s not really in my interest to work with him or her, especially since I’d be the one with the knowledge/experience deficit. When you and your client are both in the market, do you ever sign contracts that in effect give the client first dibs?
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Ira Sacharoff
// Sep 3, 2008 at 11:41 am
Watch HGTV, find what is trendy, and then look for a house that doesn’t have any of that stuff.
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Markor
// Sep 3, 2008 at 11:43 am
Good analogy! Yeah, while I agree with Ray about always looking, waiting to have the pick of the litter sounds better. Plus I want to see how far the pendulum will swing the other way. People bought excessively during the run up, increasingly the likelihood that they’ll have to sell excessively in the downfall.
50
Jbeans
// Sep 3, 2008 at 11:55 am
Here’s one:
EXPD Jan 00 $10.54 Sept 02 $13.97
But I agree with the majority that the gems of today will look less shiny as the market continues to decline.
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Sniglet
// Sep 3, 2008 at 12:28 pm
Hmmm… You could be right. After a little digging I discovered that at least a HANDFUL of stocks were up in 2001/2002. Altria and Anheuser-Busch, for example, both gained. Still, these winners were definitely few and far between. It’s easy to pick winners when the general market is going up, but fiendishly difficult to do so when it is tanking.
52
50%off
// Sep 3, 2008 at 12:28 pm
Ahhh, Gentlemen, welcome to my club!
Now is most definitely not the time to buy. The real price drops haven’t begun yet. I don’t believe it will be the REOs that change things either. They’re just the symptoms. The real problem will raise its ugly head big time next year–financing.
The banksters don’t have the money to lend and the standards will be much higher than we’ve been used to the last 7-9 years. When no one can get/qualify for a loan without 20% or more down, the pool of buyers will shrink drastically. The only homes that will sell will be owner financed, all cash deals and (desperate) REO sales. That’s desperate BANKS! or even the Resolution Trust Mark II entity.
Housing will HAVE to be cheaper than renting before things turn around. Keep your powder dry, the deals will be about a year from now. They won’t be the absolute lowest but that will be the time to start looking.
53
SeattleMoose
// Sep 3, 2008 at 12:36 pm
A “buyers market” will only make sense when home prices realign themselves with incomes and traditional lending standards. That time has yet to come.
54
Ray Pepper
// Sep 3, 2008 at 12:59 pm
there will always be a GEM of a deal. Everywhere. Anytime.. Many here have blinders on thinking that waiting will make them more money on a purchase. A true GEM can handle another 25% downturn in the market. But, its OK….Many of you just continue to wait. Its Seattle Bubble you know. Just never forget teh COST TO BUILD will always go up. This is far more important in Nevada and Puyallup with the cookie cutter homes not Seattle. The less competition for us investors makes it far easier. Prices WILL be lower the next few years across the board on homes since the mantra of homeownership has changed to bearish. This will take years to correct. In the meantime…I’m looking. Throw Mixed-Use commercial at me friends. My personal favorite.
55
Sniglet
// Sep 3, 2008 at 1:14 pm
Not true. Materials are cheaper now than a year ago. Lumber has been tanking in price and so have cement costs. Moreover, labour costs have been coming down a lot too. All those unemployed tradesmen in Florida, California, Arizona and Nevada are driving down wages. There are plenty of stories about how builders are making unilateral rate cuts to their sub-contractors.
In short, it is cheaper to build a house in Florida today than it was 2 years ago (and that’s not even considering the drop in lot prices). Before this downturn is through I am sure we will see building costs drop by huge amounts, as material prices collapse and tradesmen are forced to take even lower salaries.
This is what’s called “deflation”.
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Ray Pepper
// Sep 3, 2008 at 2:46 pm
I disagree Sniglet. Before this is all “over” it will cost more for lumber, cement, materials, permits, and taxes for initiaiting new developments. All the cookie cutter homes through out Puyallup that sold for 290k that can be bought now for 225k must always price in what will it cost to rebuild. In Nevada the cookie cutters are now 160k for 1500 sq feet. They hit a high of almost 300k. They are getting gobbled up quickly from 140-180k. The same will happen to the glut in Puyallup…TGT price will be 180k. bank on it. You will not see New developments initiated in the zones I target for under 200k. Gobble up these GEMS at 180k if you can get them and you want residential in your portfolio.
57
Manav
// Sep 3, 2008 at 2:57 pm
This is my first post. Thanks for this blog. It has really helped me understand and know a lot about real estate around seattle.
My question is what about new constructions? It seems the new constructions have dropped the prices significantly. Do you think it is a good time to buy these?
58
Markor
// Sep 3, 2008 at 3:31 pm
I don’t see how it would matter much if construction costs went up in the short term, because there are plenty of empty already-built properties available to buy.
Manav, the consensus here would be to wait to buy any type of construction.
59
The MD
// Sep 3, 2008 at 3:35 pm
Manav,
That really depends on whether or not the new construction is already completed and sitting there to be bought, or if it is still under construction. In my opnion, if the house is already completed and has been sitting for a while, making an offer doesn’t necessarily hurt. Developers/Builders don’t want the huge carrying costs, especially in a declining market. The developers that truly understand the market is declining and want to get rid of it before it gets even worse. Unfortunately, not many around Seattle have yet gotten their heads around the declining market concept.
If the home is still under construction, builders may not yet be willing to negotiate as aggressively as they feel they are still buying time for the project to complete … all in hopes of a market rebound happening in the interim. Well, a market rebound we all know is not going to happen. But for the 1 in a milliion chance that it COULD happen, they will just hold off on negotiating down at this time.
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Markor
// Sep 3, 2008 at 3:59 pm
If the developer is discounting to get rid of the house before market gets even worse, that’s not much incentive to buy it.
61
david losh
// Sep 3, 2008 at 4:22 pm
I didn’t always have a real estate license. There were times it was difficult to figure out the business or who to trust. I was lucky to have grown up with some very good investors, they were all Real Estate agents. There again some of the best known agents are sales people. They also invest, but you are a pay check to them.
Many investors have strategies. Some like young hungry agents who will work thier butts off to find you a deal. The important thing is the numbers, so when they bring you a deal you plug in the numbers and see what works for your investment strategy.
In a market like this you only have an investment strategy. There are no picket fences worth what some other idiot will pay for them. Get you mind right, these are different times. When you buy in a market like this you have to think in terms of future resale, and cash flow.
A year ago was not a time to buy. If you were sitting out the market you did great. Today, in September, a year after the banking melt down, there are plenty of people who want to move on. They also have opportunity costs. If you sell here for what ever and buy in Florida with a big down payment, you’re golden.
It’s all numbers. What works for you? There are agents talking to sellers right now who want to sell today. If you get with that agent who is talking with investors you are a step ahead.
Talk to property managers. Call the guy who runs the We Buy Houses ads. Call the buyer’s agent specialist, attend work shops, get on some one’s list. They either bring you deals that make sense or they don’t, if they don’t tell them not to call you again. Get tough. Real Estate is a business, start thinking like a business person. Work the numbers.
62
Ira Sacharoff
// Sep 3, 2008 at 4:23 pm
Back to the subject of using an agent who is an experienced investor, and whether he could be competing for the same property….
I wouldn’t put it past some agents to make sure that they got the property and not you, but a lot of agents who are experienced investors aren’t investing in the same kind of properties. For example, Ray likes mixed use commercial, and I have a thing for tax foreclosed land. Just because I see a house that could likely be turned over quickly for a 30,000 dollar profit doesn’t mean I want to buy it.
63
richie
// Sep 3, 2008 at 6:31 pm
Everything has a price. At a certain point, a seller is going to say, “ I ain’t gonna to listen to you scumbag; I’d rather to keep it!” Seattle ain’t Detroit, Phoenix, Las Vegas, Miami or San Diego. You ain’t gonna to see a 50% hair-cut. Be practical, a 15% to 20% cut from the peak of last year is probably a good deal.
I recently found two houses on the brink of foreclosure. The owner-builder offered the brand-new properties in a very nice neighborhood at his cost. He cut one from $850,000 to $600,000 or $128 per square foot and another one from $950,000 to $750,000 or $172 per square feet. In a brink of eyes, they were sold at the asking price. I am not sure if I can find a similar deal again.
64
being patient
// Sep 3, 2008 at 7:00 pm
Richie,
Great Point!
The “deals” are going to come from people who NEED to sell for some reason.
It seems like we shoud ask the questions how many foreclosure will the area see and how many people NEED to sell?
I agree that everything has a price and some sellers will not let their properties go at that price.
65
being patient
// Sep 3, 2008 at 7:04 pm
On a sidenote, something that I have not seen addressed on this site.
There has been a lot of discussion regarding lending and failing banks.
I have heard that foreign banks are beginning to buy up or take over some of our floundering banks. How will that play into the whole housing and banking crisis?
66
david losh
// Sep 3, 2008 at 9:13 pm
People needing to sell need to sell for a reason, usually money. The best deals are from people who have used the property to it’s economic conclusion. A rental that is done, paid off, cash flowed and now needs an infusion of cash to make it economically feasible again.
An investor trading up, never wanting to see another residential property. An investor who has too much property and wants to down size to pay down principle balances. You’re right some investor agents will buy what you want. It is an addiction, once you start playing the monopoly game it’s hard to stop.
Many proeprties float around in investor circles, you can not own them all, you have to buy sell and trade to stay in the game.
I could go on, but what’s the point.
Banks are not investors. Investors buy notes secured by Real Estate. Banks can fail all they want, they are the conduit. It’s the investors who will scamble to unload and sell to China. All Real Estate value is a function of time. The Chinese have a sceince about long term investing. In short, don’t count on bank failures in your Real Estate investing strategy.
67
Sniglet
// Sep 3, 2008 at 9:29 pm
It won’t have much of an impact. Foreign investors are just going to catch a falling knife. Just look at how well the sovereign wealth funds have done with their CitiGroup investments.
I remember when the Japanese were snapping up American real-estate like mad in the ’80s, and everyone was talking about how the country was being taken over. In the end, most of the Japanese firms wound up leaving with their tail between their legs. Mitsubishi lost billions on the Rockefeller center, and even Pebble Beech was a loss.
Let those foreigners waste as much money as they please buying dead banks, in the end it won’t help them one bit, and neither will it hurt the US either. Keep in mind that the banks that are heavily shopping themselves to foreigners are the very ones that would go bust if they didn’t recieve some kind of bail-out.
If it comes to choosing between a tax-payer bail-out or letting foreign investors throw money on a corpse, I know what my choice would be…
68
The MD
// Sep 3, 2008 at 9:35 pm
Richie,
Prices will decline far more from peak than your projections. You, yourself, have ALREADY negotiated nearly 30% off of the asking price from your owner-builder, and things have JUST BEGUN here.
You’re in for a sad, sad realization if you truly believe our market is nearing its bottom. This is a GLOBAL epidemic. All ships rise with the tide…. Unfortunately for those that are in homes who bought near peak, all ships lower with the tide as well.
69
Angie
// Sep 3, 2008 at 10:10 pm
As an anecdatum, it looks like the first unit in an 8-pack of townhouses near here might have finally sold. The development was getting finished up just as the funding gears seized up last summer. They have been sitting there doing a whole lot of nothing for months. I think I only ever saw one agent open house, and no open houses for prospective buyers.
At least, I’m guessing it got sold, because now only seven of the eight units is listed in the MLS….
Paging Ira: could I drop you a line and ask you to snoop out the whys and wherefores, or at least the how much-es and dates of closings, and stuff? I am nosy, but I also figure if my new neighbor is going to be rattling around all by their lonesome amidst all those empty townhouses, I oughta at least bring them some zucchini bread or something and say “hi”.
70
What goes up must come down
// Sep 3, 2008 at 11:16 pm
richie I think you don’t have a clue — do you think people thought Detroit, Phoenix, San Diego — etc.. would fall like they did BEFORE it happened? Short Answer — NO. Just like 8 months ago in Seattle when people would have said that a builder wouldn’t do what you just described, Geez.
71
Buceri
// Sep 4, 2008 at 4:49 am
He cut one from $850,000 to $600,000 or $128 per square foot and another one from $950,000 to $750,000 or $172 per square feet.
Richie; $128 per square foot is one heck of a haircut.
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Alan
// Sep 4, 2008 at 11:40 am
A falling tiide creates more land.
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Katie of Germany
// Sep 4, 2008 at 12:41 pm
We bought 8 units in Yakima in March and another 8 in Bremerton in July. On the Bremerton units, we offered $40,000 below asking, put 1/2 down in cash, and we got 0% interest for 5 years:*) If they own it, offer a cash down and see if they’ll go for the low or no interest owner financing.
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Civil Servant
// Sep 4, 2008 at 12:44 pm
Alan: bravo. That’s fantastic.
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biliruben
// Sep 4, 2008 at 12:51 pm
Katie - have you been to Bremerton or Yakima?
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