Looking for Real Home Buying Advice
We've been seeing some just plain ridiculous questions regarding how/when someone should go about buying a home in this market. But we all know that prices are falling, and they are falling quickly. Anyone who doesn't have a very large down payment will definitely find themselves upside down in the near future if they buy today.
But what if you have done all the requisite work. Let's say you have a large down payment (greater than 20%), you have a stable job, you expect to be in King County for the next 10 years, and you are at a point in your life where you feel ready for home ownership.
If you are in good shape to buy, but want to mitigate downside risk, I think you need to bargain a house down, since the houses that are listed as real deals tend to go very quickly. But I would like some advice on how much of a discount a house needs to make it relatively safe to buy now. Let me throw some numbers out.
Let's say comps are priced at KC median ($450,000ish). And let's assume that regardless of what you pay, you'll have 20% down and and extra $10k left over for repair/moving/upgrades. What is a good price to pay today on such a house? $360k is 20% off, just for a starting point.
But what if you have done all the requisite work. Let's say you have a large down payment (greater than 20%), you have a stable job, you expect to be in King County for the next 10 years, and you are at a point in your life where you feel ready for home ownership.
If you are in good shape to buy, but want to mitigate downside risk, I think you need to bargain a house down, since the houses that are listed as real deals tend to go very quickly. But I would like some advice on how much of a discount a house needs to make it relatively safe to buy now. Let me throw some numbers out.
Let's say comps are priced at KC median ($450,000ish). And let's assume that regardless of what you pay, you'll have 20% down and and extra $10k left over for repair/moving/upgrades. What is a good price to pay today on such a house? $360k is 20% off, just for a starting point.
Comments
I think you either have to get lucky and nab a rare well-priced house as it goes on the market, or you just gotta wait them out.
Agreed. But that doesn't mean it isn't worth trying. Besides, I didn't state I was buying today. As homes languish, owners who must sell will be more willing to listen to lower offers. I've already seen some homes where the owner sounds desperate. The only question is how desperate.
Also, when I stated $360k on a $450k house, I didn't mean that was the right offer. I was throwing that out there as a starting point for discussion. Is that too low? Not low enough? If you can get for $400k something with $450k, is that low enough to protect yourself?
If it's a ticky-tacky house in the burbs of the mold as 300 others in the neighborhood, priced at last July's peak, then I wouldn't touch it for more than 20% off list. They won't yet take it, probably, but that's all I would pay, and be willing to eat the additional 10% it will likely fall
If it's a unique home in Laurelhurst already priced 10% off peak, I would be thrilled to see them seriously consider an offer of another 10% off, but my guess is they wouldn't accept yet.
My guess is we probably won't start seeing waves of desperation until July of 2009 around these parts.
On the other hand, I'm seeing nice houses on the east side stay on the market for long periods, so they'd be more inclined to look at lowball offers.
That said, I'm a little more optimistic than many on this board. I don't think, on average, we will see more than an additional 10-12% decline( some areas more, some less)...i think we'll also see a lot more short sales in the next year or so, which also offer significant discounts from market value.
From what I have seen and heard, it all depends on the seller. Finally, after about two years of price declines, it seems there are more and more sellers that have equity in their homes that are really pricing them to sell, and they typically sell within 5%, +/-, of the asking price.
Seattle is at the top of the "precipice", and I would think that it is going to take a while before sellers realize that they aren't going to get the prices they necessarily think they should get. I think by Aug - Oct 2008, you'll start seeing some realization from Seattle sellers, with more sellers willing to negotiate.
Buying a house is a business transaction. Selling a house is more than a business transaction because of all the personal memories and time spent there (from my personal experience). If the sellers won't budge on their price, and you cannot afford it, then move on to the next property. If you can afford it, it is what you need/want in a property, you really want to own a home, and think you'll be there for 10+ years, then consider buying it at the asking price.
Also, be realistic. I don't expect to buy a (real) $1M property for $600K.
Personally, this is what we are going to do when we are buying our next house:
Find out as much info about the sellers that we can: when did they buy, how much of a down payment did they put down, how much of a mortgage do they have, how long has it been on the market, how many price reductions, how much $ and sweat equity did they put into it, why do they want to move, where are they moving, etc. That will give me an idea how willing the sellers are to negotiate their asking price.
Then, once I think that the sellers could be willing to negotiate, look up all the recently sold comps (3 months is best) in the neighborhood AND current listings (their competition). It may be that the sellers have priced their property pretty well and we'll likely give an offer 5 - 10% less than the asking price. If the sellers have really overpriced it, then we'd do 10 - 20% less (or whatever is appropriate) and give them our supporting comps/listings.
Just my 200 cents...
Why in the world not? I was watching My Home is Worth What? on HGTV a couple of nights ago, and was amazed at a young family that was living in a 6600sf brick mega-mcmansion (on probably 1/2-3/4 acre) outside of Atlanta that they bought for something like $560K just a couple of years ago. This same house and land in Seattle would sell today for $1.5-2M. [The STUPID thing was, this family wanted to move 'to have a bigger yard for the dog to run around in,' and the guy was holding one of those pint-sized dogs that probably had 2K sq ft of the house all to itself.]
It almost makes me want to move to one of these places where prices are so much lower--I could sell my 30-year-old crapbox rambler in M$ pink pony land for, um, let's say $450K and move to NC and be living in real style!
If they can build a brick 6600sf house in the Atlanta suburbs for $560K and still make money on it, it tells me that houses around here are seriously overpriced (and don't give me that 'it's the land cost' bla bla bla, I know how much they paid for the land underneath the $1M houses down the street from me and they could be selling those houses for $5-600K and STILL make a profit).
Large builders are able to build very cheaply, my old townhouse in San Jose was built for $100/sq ft during a building boom in the late '90s. They even had to import a drywall crew from LA to finish the final phase. And yes, they were well built, though of course they were not "luxury" units.
You are right, prices MAY drop that much in the Seattle area (King County), but you are probably going to have to wait several years. Like uptown said, the farther you get from the work centers (Eastside and downtown), the harder/more the prices will fall. So a house that was $1M at the peak in Pierce or Snohomish County, COULD go for $600K, but probably not this year.
Why not $600K? Because there are likely too many people that will think it is a deal at $800K or $900K this year.
And have you ever been to Atlanta? I visited in spring of 2003 and have good friends that live there. All I will say is "yack". Too many d@mned bible thumpers...literally on the street corners. I would need to be paid very well to put up with that.
The difficulty for me is estimating the effect of upward price pressure due to Seattle's relatively strong (and still growing) economy. My guess now is that any upward pressure will be swamped by bad news nationwide, as the country implodes financially. We might even have a negative bubble. Think of the millions of people who are going to bankrupted by a 30+% fall in house prices, and the effect that will have on the economy as a whole. It'll be Great Depression II.
I don't think lowballs will work very well now. It does take time & effort to make an offer, so I'll wait until the writing is on the wall better.
http://www.nytimes.com/2008/03/16/reale ... =permalink
I do believe reality is slowly re-emerging in Kitsap
Waterfront Condos to Be Put Up for Auction
Twenty-eight new condominiums on the Bremerton waterfront will go on the auction block next month — with the starting bid on the cheapest unit reduced in price by 58 percent.....
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I like your article. My favorite quote is:
Oh? And they did have shame when asking $600k for a house they bought 18 months ago at $325k?
Here's some good advice though:
"A real estate agent now himself, Mr. Bednar sees no shame in making a low offer on a property clearly priced well above the market. While even 5 percent below the asking price might be considered an unfair lowball on a reasonably priced home, on a property priced 'horribly high,' he said, '20 percent might be just scratching the surface.'
Sellers aren't typically so logical in their assessment of an unexpectedly low offer, of course. Those who perceive a lowball as a slap in the face tend to treat the offending buyers — and sometimes their agents — accordingly.
'I have one seller who doesn't want to talk to me because I brought him an offer $200,000 below the asking price' of $1.4 million, said Attilio Adamo, the owner and broker at Prudential Adamo Realty, in Ridgefield, N.J. 'Some sellers get insulted and hold a grudge.' "
Their ire is understandable, said Lois A. Vitt, a financial sociologist and the director of the Institute for Socio-Financial Studies in Middleburg, Va. 'Some sellers personify their home, believing the value is all about them, not just about the sticks and bricks,' she said. 'They might have lived and loved the home, and a lowball offer can be seen as a very personal insult.' "
Now compare this with...
"Owners who really want or need to sell are accepting lowball offers. Sarah Keenan, a sales associate at Nicholas Fingelly Real Estate in Southport, Conn., recently sold a four-bedroom Cape Cod there for almost 17 percent less than the original list price of $695,000. The house had been on the market since September. 'The people that are really motivated to sell are taking it,' Ms. Keenan said.
This is not to say that every lowball offer is worthy of acknowledgment. Low bidders have a better chance of making headway if the house they are after has been languishing on the market or needs a lot of updating, agents say. Even then, the low offer is better off accompanied by a logical explanation, possibly with documentation."