Thursday, June 14, 2007

Smart home buyers stay for the long haul

Making a wise purchase offer

By Ilyce R. Glink
Inman News


In this two-part series, Ilyce Glink tackles some questions every home buyer should ask.

These days, life looks pretty good if you're on the buying side of a real estate transaction.

The number of homes for sale is at an all-time high and continuing to rise, according to the National Association of Realtors. The number of vacant homes is also at an all-time high. Developers are so desperate to unload houses that they're cutting prices in addition to offering free extras and upgrades.

But before you whip out a pen and fill in your offer to purchase, there are five questions every home buyer should ask:

1. How long do I plan to stay in this home?

This is the most critical question you can ask when going through the home-buying process because the answer can change what you buy, how much you pay for the property, and how you finance it.

Most home buyers tend to stay in their primary residences for five to 10 years. In the past few years, as the price of real estate was soaring and homeowners sought to capitalize on that, many people began treating their primary residences more like a piece of investment property. They'd buy, renovate (or not), and flip for big profits. Often, they'd plow their profits into a bigger, more expensive property.

With the real estate market slowing in many parts of the country, it makes sense to ask how long you plan to stay because short-term purchases will likely be money-losing propositions. It takes a savvy buyer to find a fixer-upper that can be renovated and flipped for a substantial profit in two to three years.

Once you figure out how long you plan to stay, ask yourself what would happen if you had to turn around and sell the property in a year. If you had to pay a 5 percent commission, plus other costs of sales including moving expenses, and the property didn't appreciate at all, would that change what you'd pay for the property today? Of course. You'd probably make a lower offer.

Be sure to take the length of time you plan to stay into account, but then account for a surprise move when calculating the price you offer the seller.

2. How desperate or anxious is the seller?

Sellers used to go to great lengths to avoid letting buyers know why they're moving. In most cases, people move because they accept a job offer in another location; they don't feel the local schools meet the needs of their children; or they aren't a good fit with the neighborhood.

But sometimes sellers move because of a death in the family, job loss (the property becomes unaffordable) or a divorce.

Finding out exactly why the seller is selling should be a top priority for all buyers and their agents. You also need to find out what kind of timeframe the seller is working under -- in other words, how desperate and anxious they are to sell and move.

The current buyer's market has produced record numbers of desperate and anxious sellers. In some cases, you have sellers who have already purchased and moved into their new homes. For them, every day that their property sits on the market translates simply into less cash back at the closing (assuming there is cash to be had).

You might also find sellers who are barely (or not) keeping up with their mortgages, and who are overextended financially.

If you find a desperate and anxious seller, you'll want to use that knowledge when constructing the offer. Desperate and anxious sellers are much more likely to accept a lower bid than sellers who feel they have all the time in the world to sell.

www.LagretRealEstate.com

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