A friend of mine is really excited about news of the buyer's market, and he's looking to buy his first house.
"Hey, Dave," he said a few weeks ago, "I've found a house I want to bid on.""Yeah? Tell me about it."
"It's just going on the market, listed for $105,000. Do you think I can offer $85,000, plus have the seller pay all points and closing costs?"
Real estate agents say that this sort of lowball offer - sometimes even 30 percent to 40 percent below the asking price - is becoming common as home shoppers catch "buyer's market fever." The reason: People hear about a buyer's market, but don't understand it.
A buyer's market occurs when the number of homes for sale exceeds the number of qualified buyers. Supply exceeds demand.
That's the case in much of the country right now. But even in the worst markets, homeowners aren't eager to give their houses away.
In the fourth quarter of 1990, the national median price of a home in America - the price at which half of sales were for more, half for less - was $92,200, down a meager 0.5 percent from the fourth quarter of 1989.
This means that many homes on the market today are selling at about the same price they would have gotten 12 months ago. For buyers, that's a plus, especially at a time when mortgage interest rates are at a four-year low.
Prices are reasonable (and negotiable); interest rates are attractive.
That's a buyer's market.
Buyers' ears tingle at "prices are reasonable." Does that mean any offer will be accepted? No way.
So how can a buyer determine which price is a good deal?
- Shop furiously. Try to see at least 20 houses in the area where you want to live. Then you will be much better qualified to judge prices.
- Ask a real estate agent for detailed information on houses that have sold recently in your target area. You can use these "comparables" to examine a seller's price.- Be serious. If you can justify an offer 20 percent below the asking price, go for it. But in most cases, an initial offer 10 percent to 5 percent below the asking price might be more realistic.
- You might think a lowball offer can't do any harm. That's true if you are dealing with a motivated seller. But some homeowners will consider a very low offer insulting, and refuse to negotiate at all.
- Remember that price isn't everything. Two houses on my street are examples.
One sold in two months for $127,500, 99 percent of the asking price. This house is in great shape and has a desirable location, pleasant floor plan, great landscaping and pretty interior.
Another has been for sale for seven months, with the price falling from $112,000 to $99,000. It sits on a busy corner and has a hopelessly quirky floor plan, poor interior and rotten landscaping.
Which has the best price? In my opinion, the house that sold for $127,500 went for a fair price. The other? Maybe $99,000 isn't low enough.
For the sharp buyer, bargains are out there. But finding them takes more work than stabbing at the market with lowball offers.
My friend, by the way, didn't get the house. It sold in two weeks for $105,000, the full asking price.