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Buying Strategies For A Market In Transition

By Broderick Perkins
 
If the real estate market moves more toward a buyer's market in the coming months, buyers should be poised to take advantage of what could be a fleeting opportunity.
Just how slow the market will go is up for debate, but economic factors converging on the national real estate market could turn against sellers and give buyers more of an edge -- if only for a short time.
If Silicon Valley's unexpected April slump is any indication -- and the nation's real estate market often follows -- a correction could be in the works.
"In past years, I would say that October through December was the best time of the year to purchase. However, last November saw a 5 percent increase from October which is the first time there was an increase from October to November. It may repeat this year," said real estate statistician Richard Calhoun, broker-owner of San Jose, CA-based Creekside Realty.
"Consequently, I might be inclined to say the best opportunity will be in the August-through-October time frame. Buyers will definitely want to be in escrow prior to New Years 2001," said Calhoun.
To prepare buyers for the possibility of a market swing in their favor, realty experts offered the following strategies for shopping in a transitional market.
  • Do your homework. Buyers beginning to feel a competitive edge tend to leap before they look. Obtaining general knowledge about the home buying process and the real estate market can be a relatively easy task. A glut of information available on the Internet, from free seminars and workshops and through a vast library of real estate guide books can give buyers an edge.
    "Not getting an education is the worst thing you can do," says Newport Beach, CA-based mortgage broker Randy Johnson, author of "How to Save Thousands of Dollars on Your Home Mortgage" (John Wiley & Sons, Inc.).
  • Study local market trends. Real estate markets are local. Designated by community, region or some larger geographic areas, buyer's markets generally tend to include high inventories, slow appreciation, flat or falling prices and more sellers than buyers. The regions can also be suffering from general economic distress.
    More specifically, if more than half of the houses remain on the market a month or more before selling and most of them sell for less than asking, it's a cool buyer's market, says George Devine, San Francisco broker and author of "For Sale By Owner In California" (Nolo Press, $24.95).
  • After studying 23 national markets, Ted Jones, chief economist at Houston-based Stewart Title Company, found that a market with nine or more months-of-inventory is considered a buyer's market.
  • Months-, weeks- or days-of-inventory is a theoretical measure of the time it would take to sell all available homes if no more came to market and the current sales pace continued for the duration.
  • Others say a smaller inventory can indicate a buyer's market.
  • "If there is more than 80 days of inventory, it is a buyer's market," says Calhoun.
  • In any event, a seller's market doesn't become a buyer's market over night and if you aren't tracking indicators during the transition it could cost you.
  • Don't offer too little. Buyers who don't educate themselves about prices tend to low ball sellers and ask for too many concessions. Even in a buyer's market, that could insult the seller.
  • Don't pay too much. Paying seller's market-prices in a transitional market is a common mistake buyers make. Home buyers should make the same price checks a seller makes to price it right -- get comparables, track sale prices in your shopping area, use the local newspaper to keep tabs on asking prices, visit open houses and use a real estate agent schooled in the history of market trends and statistics.
    "If you are still in doubt about the value of the home, hire a professional appraiser. Spontaneous guesses of value are not what you need," said Joseph Eamon Cummins, author of "Not One Dollar More!: How to Save $3,000 to $30,000 Buying Your Next Home" (John Wiley & Sons, $16.95).
  • Buy low, sell high. Buy the least expensive house on the best block. Buy into the least expensive neighborhood in the best community. Buy into the least expensive city in the best region. The cheapest home in a neighborhood, community or region in transition will give you the greatest return on your investment in any market, said Ray Brown, a San Francisco broker and co-author of "Home Buying For Dummies" (IDG Books, $16.99).
  • Get preapproved. Don't let a false sense of power overcome you. Even sellers motivated to sell aren't going to wait for your money to show up.
    "Don't go into this market without preapproval for the loan you will need. Be certain of your maximum budget," said Cummins.
  • Be real. Buy because you need a home, not because it's a buyer's market.
    "What is the buyer's actual situation? Is he a 'Must Buy', or a 'Could Buy'? If a 'Could Buy' my suggestion is to stay out of the market until a clearer direction is established," said Cummins.
  • Rent. Renting now and waiting out the market is a gambit, but it could pay off, over time, in a transitional market.
    "Should this be the peak or near the peak, it could take five or more years for home prices to simply return to their current levels. A homeowner would need still higher prices to cover their transaction costs of buying and selling the home -- you generally need at least 15 percent appreciation just to recoup those costs," said Eric Tyson, co-author of "Home Buying for Dummies" (IDG Books, $16.99).
    "For those who like to consider the investment perspective of buying versus renting, examine the after-tax monthly cost of buying a given home to the monthly cost of renting that same home. If the two numbers are close, there's generally less danger of buying in that market versus a market where you're paying a substantial premium to buy (probably like the Bay Area now)," said Tyson.

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© Copyright 2000 by Realty Times. All Rights Reserved.

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