Will this home buying strategy work?
May 7, 2008 7:07 AM Subscribe
First-time-home-buyer filter: Continue low balling, or buy something less appealing?
We are currently trying to buy our first home northwest of Boston, between Rts 128 and 495. We know what we can afford, but most of the places that meet our wants/needs are priced $30-70k or more above our number. Everyone tells us “this is a buyer’s market” and we hear stories like our friends’ who recently paid $50k below asking price for a nice home in a desirable area. So our strategy has been to look at properties that are listed around 15–20 % above our upper limit with the hope of finding a “motivated” seller who will drop the price to what we can afford.
Is this a reasonable strategy for a first time homebuyer in this specific market and general location?
Other relevant info:
- We are hoping to end up in one of the towns with great schools (Acton, Concord, Sudbury, etc. – preferably not Maynard due to their schools)
- We’re all set with credit, mortgage approval, and a reasonable (around 15%) down payment.
- We have a buyers broker.
- We’re hoping for a 3br, single family home with at least a small yard.
- We plan to stay in the home at least 5-10 years.
We are currently trying to buy our first home northwest of Boston, between Rts 128 and 495. We know what we can afford, but most of the places that meet our wants/needs are priced $30-70k or more above our number. Everyone tells us “this is a buyer’s market” and we hear stories like our friends’ who recently paid $50k below asking price for a nice home in a desirable area. So our strategy has been to look at properties that are listed around 15–20 % above our upper limit with the hope of finding a “motivated” seller who will drop the price to what we can afford.
Is this a reasonable strategy for a first time homebuyer in this specific market and general location?
Other relevant info:
- We are hoping to end up in one of the towns with great schools (Acton, Concord, Sudbury, etc. – preferably not Maynard due to their schools)
- We’re all set with credit, mortgage approval, and a reasonable (around 15%) down payment.
- We have a buyers broker.
- We’re hoping for a 3br, single family home with at least a small yard.
- We plan to stay in the home at least 5-10 years.
This question is really best referred to your buyer's agent. They'll have the best familiarity with your market and your particular needs.
posted by baphomet at 7:30 AM on May 7, 2008
posted by baphomet at 7:30 AM on May 7, 2008
Last year we bought a house in Nashua and did some house hunting in MA not too far from your target area. In my non-expert opinion, I don't see any harm in your strategy. Several of my friends have bought homes in the area this past year, none of us have paid the asking price. It's not like houses for sale are hard to come by right now -- if you're not in a mad rush to get one specific dream house, make the offer you're comfortable with. The worst that can happen is it won't be accepted, and you might be pleasantly surprised at what you can negotiate.
One piece of advice my parents gave me was not to take my buyer's agent too seriously in terms of her recommended offers. Even your agent is going to gain from the sale price of the home, so keep that in mind if they don't seem enthused with your offer price.
Good luck!
posted by tastybrains at 7:32 AM on May 7, 2008 [1 favorite]
One piece of advice my parents gave me was not to take my buyer's agent too seriously in terms of her recommended offers. Even your agent is going to gain from the sale price of the home, so keep that in mind if they don't seem enthused with your offer price.
Good luck!
posted by tastybrains at 7:32 AM on May 7, 2008 [1 favorite]
At the risk of giving glaringly obvious advice, have you looked into (or had your buyers agent get you a list of) what comparable homes in the area having actually been selling for? While it does indeed seem to be a buyers market right now, that doesn't mean you should just arbitrarily throw out a number and hope someone will bite. Giving a realistic offer that is within the range of what other similar homes in the area have been closing for will give you a better chance of having a seller take your offer seriously, as opposed to just throwing out a number you want to pay.
posted by The Gooch at 7:41 AM on May 7, 2008
posted by The Gooch at 7:41 AM on May 7, 2008
This question is really best referred to your buyer's agent. They'll have the best familiarity with your market and your particular needs.
Your buyer's agent wants to broker a deal with a minimum amount of work. What you are proposing sounds like more work for him or her.
posted by malp at 7:41 AM on May 7, 2008
Your buyer's agent wants to broker a deal with a minimum amount of work. What you are proposing sounds like more work for him or her.
posted by malp at 7:41 AM on May 7, 2008
The price you pay relative the asking price is not really all that relevant. What you want to focus on is the price you pay relative to the true market value. In this market the asking price should be about five to ten percent above true market value, but everyone will set it a bit differently. After you have looked at enough houses you will have a pretty good sense of true market value. You should be working with an agent who can help, or even better, a buyer's agent who truly has your best interests in mind. In this market there are bargains to be had. If you have time on your hands, things will get a bit touchy for sellers come summer as they worry that they may not complete the sale prior to school starting, which is quite important for sellers with children moving to a different school. Also, it does not seem like the bottom has been reached in this market, although I don't know about your specific region.
posted by caddis at 7:54 AM on May 7, 2008 [1 favorite]
posted by caddis at 7:54 AM on May 7, 2008 [1 favorite]
One possible strategy is to target the sort of places where you might like to live and then make it generally known that you are in the market with a house with X characteristics for which you will be willing to pay Y price. By "making it generally known" I thinking about putting letters in post boxes and maybe sticking a note in a local store/newspaper. The aim is to attract the attention of potential sellers who would rather sell for Y quickly rather than pay a cut to an agent and hold out, in a falling market, for the hope of Y+Z% offer.
posted by rongorongo at 7:59 AM on May 7, 2008
posted by rongorongo at 7:59 AM on May 7, 2008
2nding The Gooch. We got our home at $30k below asking, because we went with comps in the area; they were overpriced, the home had been on the market 8 months with no offers (this was in Sept 06), and by pointing out relevant comps, we were able to talk them down to a number we were more comfortable with. Logic works even with stubborn sellers (like ours).
I would also keep in mind that appraisers and lenders these days are VERY leery of over-valuing a home, so if you find something that's priced significantly above market, that seller will have to get lucky enough to find a buyer who wants to pay in cash, or will have to drop the price to current market to allow a buyer to get a mortgage on it. Hopefully your agent is on top of this, but if you feel like they are not, don't feel bad about switching to a buyer's agent who is comfortable negotiating based on the current credit market conditions as well as comps.
Good luck!
posted by tigerjade at 8:02 AM on May 7, 2008
I would also keep in mind that appraisers and lenders these days are VERY leery of over-valuing a home, so if you find something that's priced significantly above market, that seller will have to get lucky enough to find a buyer who wants to pay in cash, or will have to drop the price to current market to allow a buyer to get a mortgage on it. Hopefully your agent is on top of this, but if you feel like they are not, don't feel bad about switching to a buyer's agent who is comfortable negotiating based on the current credit market conditions as well as comps.
Good luck!
posted by tigerjade at 8:02 AM on May 7, 2008
Can you wait a while? Prices seem to be coming down in Boston, overall. (See this chart, the gold line is price, the bars are monthly annualized percent gain or loss). If you can wait, prices will likely come down and sellers more desperate, perhaps particularly if you can wait until after the summer selling season.
posted by procrastination at 8:16 AM on May 7, 2008
posted by procrastination at 8:16 AM on May 7, 2008
Your buyer's agent wants to broker a deal with a minimum amount of work. What you are proposing sounds like more work for him or her.
If you feel like this is your buyer's agent's attitude, and therefore need to turn to the advice of strangers on the internet for home buying strategies (rather than the Realtor representing you) then you need to find a new agent.
Believe it or not, there are hard working individuals in the real estate business who have their clients' best interests in mind.
posted by baphomet at 8:32 AM on May 7, 2008 [1 favorite]
If you feel like this is your buyer's agent's attitude, and therefore need to turn to the advice of strangers on the internet for home buying strategies (rather than the Realtor representing you) then you need to find a new agent.
Believe it or not, there are hard working individuals in the real estate business who have their clients' best interests in mind.
posted by baphomet at 8:32 AM on May 7, 2008 [1 favorite]
We live in Winchester and have been thinking about cashing out of our home and downsizing, so we have been studying the local real estate market for a few months now. You absolutely cannot presume that homes in "desirable" neighborhoods are overpriced and will drop in price. It seems to us that houses in places like Woburn are overpriced and not moving, but houses in Winchester seem to be selling within weeks if not on the day they go on the market. A house two doors down from us had 4 offers on its first day on the market, just this past month. There is still a fair amount of inventory left over from last year - when we look into these they invariably have some fundamental problem (great house on an extremely busy, loud street). Although this market can be confusing, fundamentally the same technique always applies: study the market, learn what things are selling for, and eventually you will see a house that is new to the market that is priced sensibly. When that happens, buy it.
posted by thomas144 at 8:37 AM on May 7, 2008
posted by thomas144 at 8:37 AM on May 7, 2008
My former roommates in Somerville just got a house in Cambridge near the Alewife T for 100K under the appraisal/asking price. It can be done, you just need to be persistent, and as stated above, your broker wants to do the least amount of work possible, you're going to have to pick up some of the slack. I think posting some flyers in coffee shops/post offices/etc in your preferred neighborhoods/cities is not a bad idea at all. And hey, at least it's not like the market a few year ago when people were throwing money over and above the asking price just to get the house they wanted, period.
posted by bitter-girl.com at 9:38 AM on May 7, 2008
posted by bitter-girl.com at 9:38 AM on May 7, 2008
It is a buyers market BUT it depends on the region and it sounds like your region isn't that flexible. I am not in New England but I bought a new construction home and got 35K off last year and rumors are the guy down the street got even more off cause the builder needed to get out of the house.
Are there new developments going up in your area as there would likely be your biggest bang for the buck.
Good Luck!
posted by doorsfan at 9:54 AM on May 7, 2008
Are there new developments going up in your area as there would likely be your biggest bang for the buck.
Good Luck!
posted by doorsfan at 9:54 AM on May 7, 2008
FWIW, I think the rules have gone out the window. The housing bubble has burst, you can't get a mortgage, banks are writing off sub-prime, etc. etc. And yet, there are people in "man on the run"'s situation who need a place to live. I'm currently selling a place just because I have to sell it due to a divorce. But is selling now the right choice? Would it be better to wait and see? My place has declined in value by over $100,000 since it was put on the market last December. Still, I bought it a long time ago--way before the bubble--so I've still got room.
Agents and buyer's agents certainly knew the market, but I'm not convinced they know it anymore. Every agent told me in Sept-Oct. 2007 that a good selling price was $100,000 more than what it's listed at now. Can the price drop that far that fast? It sure seems to be the case. And yet, my state's population is increasing, and this place is on an island.
It would be helpful to get some "new rules" advice: let's assume the dollar will continue its 40% devaluation, gas will go to $4, we will have 10-12% unemployment for two to three years. Holding cash doesn't make sense, because it's continually being devalued. Real estate made sense, but it's a consumable. So what should you do?
BTW, I would just bring offers. While I'm not looking at foreclosure, a lot of people are. I can't imagine that the banks will go after the people who are upside down in their mortgages: it's simply too expensive. A post-foreclosure case will cost the bank a minimum of $5,000, and there's no guarantee of collection.
posted by tesseract420 at 11:27 AM on May 7, 2008
Agents and buyer's agents certainly knew the market, but I'm not convinced they know it anymore. Every agent told me in Sept-Oct. 2007 that a good selling price was $100,000 more than what it's listed at now. Can the price drop that far that fast? It sure seems to be the case. And yet, my state's population is increasing, and this place is on an island.
It would be helpful to get some "new rules" advice: let's assume the dollar will continue its 40% devaluation, gas will go to $4, we will have 10-12% unemployment for two to three years. Holding cash doesn't make sense, because it's continually being devalued. Real estate made sense, but it's a consumable. So what should you do?
BTW, I would just bring offers. While I'm not looking at foreclosure, a lot of people are. I can't imagine that the banks will go after the people who are upside down in their mortgages: it's simply too expensive. A post-foreclosure case will cost the bank a minimum of $5,000, and there's no guarantee of collection.
posted by tesseract420 at 11:27 AM on May 7, 2008
Amplifying a point made earlier: Never forget that your real estate agent is not your friend.
Agents might have some good anecdotal information and interesting experiences, but they have very different interests than you do. Their primary interest is in seeing a sale get made at any price. Even a significant difference in price paid makes little difference to their commission. That means that the agent representing the buyer will encourage the highest possible offer since that is most likely to be accepted by the seller. On the other hand, the agent representing the seller wants to push the seller's price as low as possible, since that is most likely to be accepted by the buyer.
So you should listen when they talk about the neighborhood and the house and all the bright pretty shiny things, see what their comps say (but note that the comps they bring out will be selected to guide you to a price, they are not a truly representative sample - ask to see ALL of the recent sales in the neighborhood and comparable houses and put them in a spreadsheet and sort and resort in different ways), but completely ignore them when they talk about prices.
Treat what you hear from the agents as just one data point and seek out others. Get sales and price information from the city/county registrar or recorder either online or if necessary in person; the recorded data lags by several months but you should be able to find out what the current owner paid and when and see other patterns.
Trust the objective data and trust your instincts. Of course you should bid as low as possible. Especially now. Take what the agent says you should bid and drop it by 5, 10 even 20%. There is no cost to a low offer, you can always offer more if its rejected. Agents will warn you about "offending" the seller with a low offer. That rarely happens in real life - the seller cares about the number just like you do.
This is one of the biggest purchase you make in your life, don't make your decision on the basis of information from a biased source.
posted by RandlePatrickMcMurphy at 12:19 PM on May 7, 2008
Agents might have some good anecdotal information and interesting experiences, but they have very different interests than you do. Their primary interest is in seeing a sale get made at any price. Even a significant difference in price paid makes little difference to their commission. That means that the agent representing the buyer will encourage the highest possible offer since that is most likely to be accepted by the seller. On the other hand, the agent representing the seller wants to push the seller's price as low as possible, since that is most likely to be accepted by the buyer.
So you should listen when they talk about the neighborhood and the house and all the bright pretty shiny things, see what their comps say (but note that the comps they bring out will be selected to guide you to a price, they are not a truly representative sample - ask to see ALL of the recent sales in the neighborhood and comparable houses and put them in a spreadsheet and sort and resort in different ways), but completely ignore them when they talk about prices.
Treat what you hear from the agents as just one data point and seek out others. Get sales and price information from the city/county registrar or recorder either online or if necessary in person; the recorded data lags by several months but you should be able to find out what the current owner paid and when and see other patterns.
Trust the objective data and trust your instincts. Of course you should bid as low as possible. Especially now. Take what the agent says you should bid and drop it by 5, 10 even 20%. There is no cost to a low offer, you can always offer more if its rejected. Agents will warn you about "offending" the seller with a low offer. That rarely happens in real life - the seller cares about the number just like you do.
This is one of the biggest purchase you make in your life, don't make your decision on the basis of information from a biased source.
posted by RandlePatrickMcMurphy at 12:19 PM on May 7, 2008
While the buyer's agent should be representing your best interests (the lowest price), don't take their advice as the end-all truth. If nothing else, real estate agents will hesitate to offer a severely low-ball offer, even in a buyer's market. There is some truth in a ridiculous offer not even getting a counter-offer, but I wouldn't worry too much about that scenario - you can always make a second offer, although you have weakened your bargaining position at that point.
I am not your real estate agent, but here is my advice: If it is the house you want, make an offer at the price you can afford. Worst case, they say no.
posted by shinynewnick at 6:10 PM on May 7, 2008
I am not your real estate agent, but here is my advice: If it is the house you want, make an offer at the price you can afford. Worst case, they say no.
posted by shinynewnick at 6:10 PM on May 7, 2008
There are buyer's markets in the US, even in MA. Unfortunately, not in the places you're looking. Buyers are getting sweet deals in places where there is a glut of housing and the current owners are desperately staving off the lender knocking at the door. I'm sure there are some home owners like that in the towns you want to be in, but I'd bet they're few and far between.
Its a buyer's market in places where many recent over-extended themselves to buy into more house than they can afford. Generally speaking, the towns you've mentioned don't fall into that category. Not to be flip, but you don't go to Barney's looking for good deals. I don't think you can go into a town like the ones you've mentioned (even Maynard) and realistically expect to score. Also,
Bottom line: if you want to be that close to Boston, with more space and privacy than you can get within 495, the benefit of a school district like Concord-Carlisle or Lincoln-Sudbury or Acton-Boxboro, and the cache living in these towns provides, then you're going to be dealing with a seller's market. Towns with as much going for them as these are always going to be highly desirable places to live, and there's going to be more people looking to get in than are looking to get out. I think there are better places to look if you want a deal, probably just on the other side of 495 - go north to Chelmsford (great schools, pretty town, but further out from Boston than the places you mentioned (although the Route 3 commute isn't too bad if you time it right)) or Westford, Littleton, or Harvard (which is gorgeous). Even South/Southwest to Bolton or Stow. However, you'll be hard pressed to find school systems as good as the ones in the towns you hope to land in, no matter where you end up.
Good Luck.
posted by diggerroo at 8:51 PM on May 7, 2008
Its a buyer's market in places where many recent over-extended themselves to buy into more house than they can afford. Generally speaking, the towns you've mentioned don't fall into that category. Not to be flip, but you don't go to Barney's looking for good deals. I don't think you can go into a town like the ones you've mentioned (even Maynard) and realistically expect to score. Also,
Bottom line: if you want to be that close to Boston, with more space and privacy than you can get within 495, the benefit of a school district like Concord-Carlisle or Lincoln-Sudbury or Acton-Boxboro, and the cache living in these towns provides, then you're going to be dealing with a seller's market. Towns with as much going for them as these are always going to be highly desirable places to live, and there's going to be more people looking to get in than are looking to get out. I think there are better places to look if you want a deal, probably just on the other side of 495 - go north to Chelmsford (great schools, pretty town, but further out from Boston than the places you mentioned (although the Route 3 commute isn't too bad if you time it right)) or Westford, Littleton, or Harvard (which is gorgeous). Even South/Southwest to Bolton or Stow. However, you'll be hard pressed to find school systems as good as the ones in the towns you hope to land in, no matter where you end up.
Good Luck.
posted by diggerroo at 8:51 PM on May 7, 2008
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posted by mkb at 7:25 AM on May 7, 2008