Archive for June, 2009

Getting outbid for houses? Relax. Available homes are not in short supply, so there is no reason to overpay

This from my Arizona Republic real estate column (permanent link):

Here’s a situation that’s all too common in the Phoenix real estate market right now:

You make what you think is a good offer on a home, only to find out that you are one of several bidders. The home can be lender-owned, a short sale or just an ordinary owner-owned home. It’s probably priced pretty aggressively to the market, though. That’s why it attracted multiple offers.

Here’s what happens next: The listing agent sends out Multiple Counter Offer forms. The Multiple Counter Offer can specify some ideal offer, perhaps the best one received so far. Or the lister can simply ask buyers to make their best offer. Or the Multiple Counter Offer can specify different terms to each buyer.

How do you respond?

You don’t know what you’re competing against. And even if you have a fair idea of what the best offer might have been before the lister sent out the Multiple Counter Offer, you have no idea what you might have to beat by now.

But, guess what? It gets worse. Because you don’t even know for sure that there are other buyers, or, if there are, if they are willing to respond to the Multiple Counter Offer.

Do you understand? You could be involved in a brutal bidding war — bidding only against yourself!

What are your alternatives?

First, don’t get caught up in the fever of a silent auction. A property is worth what it’s worth in the current market. It does not gain in value just because people are competing for it. Your offer should reflect the market value of the home. If you lose out, go buy another. Houses are not in short supply.

And because houses are not in short supply, ask yourself why you’re in such a fierce competition to begin with. You might not be able to get the property that’s listed at a very low price but sells at a much higher price. But you may be the only bidder on the home that is priced to the market — and will end up selling for the market price.

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Cashing in on your $8,000 first-time home-buyer tax credit may take some effort in the current Phoenix real estate market

This from my Arizona Republic real estate column (permanent link):

The mini-boom we’ve been seeing in the Phoenix real estate market over the last few months may be abating slightly, but, for now at least, snagging a cheap house can take some effort.

Bargain-priced lender-owned homes are generating multiple offers and are selling, ultimately, at above-list prices. Many lenders are handling their short sales as silent auctions, with every offer being forwarded to the bank for evaluation. Buyers are pitted against each other with multiple-counter-offers.

Many of the buyers of lower-priced homes are investors. Some of them are buying homes to fix and flip, but most are newly-minted landlords in search of tenants.

Most of the rest are first-time home-buyers looking to cash in on the $8,000 federal tax credit. These folks are in a tough spot. Without cash for repairs, they can’t compete for the cheapest of the lender-owned homes. And since the homes they buy must appraise for at least the purchase price, they can’t compete against all-cash buyers.

But here’s the irony in this whole scenario: There is no shortage of housing in the Valley. Right now there are about 33,000 residential listings in the MLS system. That’s down from a high of 55,000, but it’s way up from a low of 11,000 at the peak of the boom.

Moreover, there are many thousands of homes in the foreclosure pipeline that have not hit the market yet. For whatever reason, banks are withholding that inventory — perhaps to put a floor under prices. If so, that floor will likely be a durable one, with the steady drip of lender-owned homes keeping prices at around their current levels for years to come.

But moreover yet again, we are still overbuilt. We simply have more kitchens than cooks. If you have to close before November 30th to get your tax credit, you may not see the humor in our situation. But take heart: Investors can only tolerate so much vacancy before they rethink their spending. Rationality will return to the real estate marketplace.

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Getting a $15,000 tax credit when you purchase your next home could be as easy as stealing candy from a baby…

This from my Arizona Republic real estate column (permanent link):

So we started with a $7,500 tax deduction for first-time home-buyers.

But that didn’t juice the real estate market enough, so we bumped the number up to $8,000 and made it a full-blown tax credit. If you owe $8,000 in taxes next April, your slate is wiped clean.

But even that didn’t juice the the real estate market enough, so this week Republicans — the alleged party of fiscal responsibility — proposed bumping the tax credit up to $15,000 and making it available to everyone — including billionaires.

How cool is that? You buy a $150,000 house, you get 10% back when you file your taxes. And you can file an early return to get the money now. And you can even finance the tax credit now and pay it back when you file your return.

You can’t — quite — use the tax credit as your down payment, but that “reform” can’t be more than inches and hours away. And a $15,000 down payment on an FHA loan buys you a $428,500 house.

Unfortunately, that’s more than the FHA limit for metropolitan Phoenix, so that limit will need to be “reformed” as well.

Paying people to buy houses would be insane if we actually had the money to back up our promises. But, since we don’t, these “reforms” are the mark of true statesmanship.

I’m helping an ambitious young couple buy their first home right now. We’re late to close, a common enough situation.

They just had their second child, an event mere bureaucracy cannot delay. Their baby boy — his name is James — is sweet and beautiful, healthy and smart, a perfect specimen of incipient humanity.

They’re taking the $8,000 tax credit, of course, as they should. The government doesn’t become less insane if you shoot yourself in the foot.

But it is sweet little Baby James who will pay for that tax credit, and for millions of others, and possibly for millions more at $15,000 a pop. Our economy runs on theft — and we’re running out of people to steal from.

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Do you want to save money in the Phoenix real estate market? Stop shopping for bargains and start shopping for value instead.

This from my Arizona Republic real estate column (permanent link):

Are you looking for a bargain in the Phoenix real estate market? Everybody wants to save a buck, but here’s a different way of looking at things: Instead of shopping for a bargain, shop for value.

What’s the difference? A bargain comes about when you get a great price by buying something nobody else wants.

Like this: A grocer puts out a pyramid of apples, selling them at fifty cents each. About half sell at that price, and the grocer marks the others down to twenty-five cents. All but the last six sell, and the grocer accepts your offer of five cents each for the remainder.

That’s a bargain. You got six apples for thirty cents, when they would have cost you three dollars earlier in the day.

The only problem is, your apples are bruised and shopped-over. But that’s why you got them at the bargain price — because no one else wanted them. Tomorrow’s price for fresh, appetizing apples will be the same as today’s price, and you’ll only get the bargain price by bidding low on the shopped-over remainders.

If you’re making a pie, that’s fine. But if you’re having guests over, you’ll pay the higher price.

Apples are not houses, of course. For one thing, every house is unique. If other people are also interested in a home, you cannot expect to pay much less than the asking price.

Even so, when you’re shopping for value in real estate, the purchase price is only one factor in the calculation. What purpose do you have in mind for the property? What are your future financial objectives?

A rental home in a community with no tenants is no bargain no matter how little you pay for it. A residence in a neighborhood where the long term price trend is downward is no bargain no matter how low the purchase price.

Shopping for value means paying as little as you can get away with for a property that actually fulfills your objectives and offers a prospect for future appreciation. Anything less than that is no bargain.

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