4 Tips for Buying a House in a Buyer's Market
By Holden Lewis Bankrate.com
Now is a great time to buy a house. Prices are falling, and so are mortgage rates. Millions of
houses are for sale, and sellers are getting anxious. That's one way of looking at it. Alternatively,
you could say: This is a bad time to buy a house. Prices might be lower in a few months. Same
with mortgage rates. With more than 4 million houses on the market nationally, and more being
added daily, sellers are bound to become desperate. Why not wait them out?
In many places, it's a buyer's market in real estate, with sellers outnumbering potential
purchasers. The resulting downward push on prices makes buyers happy. But it complicates
matters for buyers, too. In some markets, there are too many choices to sort through. Even more
bewildering, buyers wonder if they should wait a few months.
"They're worried that they're going to buy too soon, and the figures will reduce, and by the time
they go through the transaction, they'll have negative equity," says Mario Villena, vice president
of Homekeys, a Miami-based online real estate brokerage. But, Villena adds, in every market
there are peoplewho are serious about buying and don't get sidetracked by market forces that
aren't under their control.
For those buyers, experts have some advice:
If you find the right house at the right price, buy it.
Put technology and a buyer's agent to good use.
If you find the right house at the right price, buy it
If you're serious about buying a house, this is both the first step and the final goal. To put it more
precisely, you have to decide whether you will actively shop and then negotiate a fair deal, or if
you'll just passively browse houses, hoping to stumble on a steal.
You're more likely to succeed with the active approach instead of waiting (possibly in vain) for
prices to fall further. You can't predict when the local market will hit bottom. Even if prices do fall,
someone could buy your favorite house out from under you. Diane Saatchi, a real estate agent
with the Corcoran Group on Long Island, N.Y., draws this analogy: "It's like when you find a dress
that you like, and you wait for it to be on sale, and then the sale comes and they don't have your
size. Theoretically, you saved 20 percent. But you don't have your dress."
There's always the possibility that you'll buy a house and then the value will fall. In the 1990s,
Southern California and South Florida had housing slumps in which it took years for prices to
recover their previous levels. It could happen again, there or elsewhere. For that reason, "buy a
home that can grow with you if necessary," says Elizabeth Razzi, author of "The Fearless
"Look to the long term, because you don't know how long you'll be there," Razzi says. "You
might have to ride out bad market conditions for a while." True to her book's title, Razzi says
you shouldn't let fear dictate your timing.
"You should not wait if you find the right property, because, for one thing, you're not looking
solely for the best price. You're looking for the best home."
And keep in mind that mortgage rates have fallen about three-quarters of a percentage point in
the last three months. "Right now is a perfect time to buy, because of a real sudden increase
in buying power," says Bill Christiano, loan officer with MortgageIT's office in suburban
Put technology and a buyer's agent to good use
Cool technological innovations are popping up on real estate Web sites practically every week.
Among the most useful are valuation tools. Zillow has the best known of these called the
"Zestimate," which is a computer-generated estimate of a house's market value. Bankrate.com
is a content partner with Zillow.com. The Homekeys site allows users to find estimated market
values and to search for listings with aggressively competitive asking prices. Homekeys operates
only in Florida, whereas Zillow has nationwide coverage. It's hard to stress how revolutionary
these valuation tools are, Villena says: "Until recently, this was impossible. You didn't have, as
a consumer, tools that could reasonably provide home values to you without spending
something like $300 for each property to appraise it."
Now those estimates are free, and you can get them without changing out of your pajamas.
Villena recommends that buyers start out by playing around with Web sites such as Homekeys,
Zillow and Realtor.com, just to find out how much they can learn about the houses in their target
neighborhoods. Focus on finding faster ways to weed out the houses you're not interested in --
because they don't fit your criteria for asking price, size, neighborhood or amenities.
"If you're a serious buyer, you really have to increase the speed at which you arrive at reasonably
priced homes," Villena says. "Those are the ones that are going to see a lot of action. You need
to be early to that party. Start out by being more specific about the characteristics defining your
With so many houses on the market, it's useful to hire a buyer's agent to sort them out, says
Pam O'Connor, president of Leading Real Estate Companies of the World, a national network of
650 regional and independent brokers. You have your pick of agents now, and "you should be
asking what's their experience, how long they've been in the market, what price they specialize
in,"O'Connor says. If you find a house you like, ask the agent to perform a comparative market
analysis -- basically, to do what Zillow does, but with the addition of human judgment. Do your
own analysis online, using Zillow, Homekeys or a similar site if you can find one. Compare your
research with your agent's. If they corroborate each other, fine. If something seems amiss, find
out why. (An experienced agent is almost surely more accurate than Zillow.)
Right now, "there's more room for negotiation" in most housing markets because the sales pace
slows in autumn, and prices have been falling, says Steve Habetz, president of ARCServ, a
network of real estate attorneys.
Villena counsels buyers to avoid the temptation to toss out lowball offers, because sellers
won't negotiate if they feel insulted. "You have to be able to defend that offer as much as the
seller has to be able to defendthe asking price," he says. "If you're not making a full-price offer,
it's not enough to pull a number out of the air. You should be able to show that this neighborhood
has 20 comparable homes for sale, and, although I like your property, it's priced 6 percent above
the other properties. That gives you a better footing for establishing an objective and reasonable
negotiation. "Don't just negotiate with the seller. "Most people think that only sellers pay
commissions," Villena says. "They think that buyers are being serviced for free. Most people are
not yet aware that there is a commission component reservedfor the buyer's agent. And that, too,
just like the seller's commission, is negotiable." How so? Some buyer's agents are willing to
rebate a portion of their commission back to the buyer at closing. For a number of real estate
brokerages, such as Homekeys, BuySide Realty and HouseRebate, buyer rebates are the focus
of the business plan. Expect to make your own appointments to view houses and to drive yourself
there if you use one of these brokerages. Realtors associations in some states have persuaded
legislatures to ban commission rebates to buyers.
You're shopping for a house, not for a Caribbean cruise or a car lease. Recently The New York
Times reportedon a condo seller who was offering to give the buyer a year's use of a leased
Mercedes-Benz E-Class sedan. Razzi says you'll find all sorts of gimmicky incentives from
condo sellers. They offer flat-screen TVs or weekends at vacation homes, or more creative
inducements. "That has nothing to do with the transaction at hand," Razzi says. If there's an
incentive, make sure it has something to dowith the dwelling -- upgraded countertops, decorating
allowances, payment of mortgage closing costs, that sort of thing. "If they're willing to subsidize
it with a $500 TV, ask for $500 off the asking price," she says.
There's another gimmick to avoid: what O'Connor calls "magic loans." This is the timeto avoid
mortgages such as pay-option ARMs and interest-only loans, she says. If you can't afford it
with a more mainstream loan, such as a 30-year fixed or a 5/1 ARM, you can't afford it. Not in
this market, where house values could drop and mortgage rates are almost sure to rise.