Buyers

After recently returning home from a real estate conference with top producing Realtors and teams from all over the United States the one constant for all of us, regardless of location was the ever persistent lack of inventory. This significant shortage of homes for us to sell and for our consumers to buy has up ended the market in a way that I believe very few expected. As a full time and top producing Realtor in LA for 20 years I certainly expected the market to pull back this year but not in the way that unfolded. Further, the effects can be felt in every corner of the country with almost no market spared.

The underlying cause appears to be the rise in interest rates. I know what you’re thinking…isn’t that backwards?? This has typically had an inverse effect on home values with rates rising, affordability falling and inventory levels swelling. This was one of the primary outcomes that was sought in the Fed’s “battle against inflation”. However, that is not what has transpired. Instead rates have steadily risen to an average national value on a 30 year fixed mortgage (at the time of this article) of 7.51%. That is an increase from a national low of 2.68% in January of 2021. Current homeowners who locked in historically low rates now find themselves hanging onto those mortgages and often times involuntarily stuck in their current housing situation because they cannot afford the higher payments. Therefore the move up buyer/seller has all but vanished and this has put tremendous pressure on the current housing stock. Here in greater Los Angeles for instance there is still less than 3 months of inventory available.

When inventory levels start to rise we might start to finally see a significant shift in the housing market, and not likely until that happens. While we are off the highs from the pandemic in 2020-2022 the market has more or less continued to chug along across the United States. Rising mortgage rates might only continue to tighten the grip on available inventory and therefore continue to buoy and even propel the market. Because at the end of the day the most basic, fundamental principle of economics will determine the outcome. That basic principle is supply and demand…without the supply increasing in a meaningful way the demand can plummet and values will hold or possibly even continue to rise. It’s a strange dichotomy and something I did not expect to see in my 20 years of experience. Where we go from here remains to be seen,  but in the meantime I am navigating buyers and sellers through these turbulent times with care and constant examination of the local real estate landscape.

Your success in the realty market lies in how well you negotiate. But negotiation is a complicated matter. All the parties involved want things to go their way. Given these conditions, how can you make things work for your favor? How does one become a succesful negotiator?

Based on experience, these five aspects determine a successful negotiation:

• What the market says

  Study the market. There will be times when it’s more favorable for buyers and there will be other times when it will lean towards sellers. The key is to strike when the time is favorable for your side. For example, as a buyer you are in a position to offer the seller a quick deal and you know that the seller is in a hurry to sell the property. Take it as an opportunity to make things work in your favor.

• Determine who has leverage

  If word has gotten out that the seller has gone bankrupt, you are in a position to make reasonable demands. On the other hand, if you know that the house is a hot item, expect many competition. Therefore, you are in no position to dictate the terms or ask for “extras”. The owner has the liberty to choose the buyer they want; usually to the highest bidder with the best terms.

• What are the details?

  What are the other costs (or savings) involved? Most people think that the price of the house is all there is to it. But in fact, there are other things to consider. For instance, Both house A and house B cost $275,000. However, house A is an older house that needs costly repairs. Plus the seller of house A agreed to pay  a portion of the closing costs. On the other hand, house B also costs the same. But cost of  necessary repairs will not be covered by the seller.

  Think about all the costs and savings involved and determine where you can get better value for your money.

• Financing

  All transactions involve money. Money affects negotiations in so many ways.

  Is the buyer pre-qualified or pre-approved by a lender? Finding your ideal house does not guarantee that financing will also be available. Your loan application can be denied because of several reasons; among them: appraisal problems, title issues, survey findings.

  One of the advantages of being pre-approved is that buyers already know how much they could afford. Sellers like buyers who are pre-qualified. They pose less risk to the seller. They won’t have to worry about waiting for the buyer to find a loan to seal the deal. Being pre-qualified means that you have the financial capacity to pay for the loan.

  Lower interest rates mean a broad market – a lot of potential buyers.

  Nowadays, downpayments are made easier. Now you can find loans with as low as 5% downpayment or even less. 100 percent financing or no downpayment plans is even an available option. 

• Broker expertise

  Brokers are now representing not only sellers but buyers as well. If you have competition, being represented by a reputable broker gives you an edge.

When you think about buying a home, one of the first questions that come to mind is whether you buy an old house or a new one. A new house may be attractive because everything is new. Nothing has been used yet. The walls are clean, the closets have never been used before, they come with energy-efficient appliances and you won’t have to spend on repairs because of wear and tear. On the other hand, you may fall in love with traditional look and feel of an old house.

When you’re at a crossroad, these points can help you decide:

Old homes

• Neighborhood.
  Some people prefer a home in an established neighborhood. Another plus factor are the full-grown trees and mature landscaping you can’t get from brand new houses.
• Maintenance and repair.
  Existing homes need to be inspected by a proffesional home inspector. There might be existing damage or potential problems that will costly to repair or maintain. Old appliances may need to be replaced. All this needs to be considered in the purchase price.
• Home improvement.
  If you’re into home improvement projects, an older house present opportunities to put your DIY (do-ityourself) skills to action.
• Freebies.
  Existing houses come with features, furnitures and appliances that are already there. You can consider them freebies.
• Land.
• Location.
  Older homes are situated in or near business centers. But newer houses are usually in far suburbs.
• Opportunity to remodel.
  There are some homebuyers who are excited at the opportunity to customize an old home according to their liking.
• Price.
  In general, existing homes cost less than brand new ones.  Buyers can even get more for their money because of existing features that count as freebies – drapes, carpet, landscape.
• Track record.
  With an existing home, you’ll already have an idea of the property’s value based on how much it has appreciated or depreciated over the years.
• Tax savings.
  Existing houses have lower property tax rates (depending on your state). Plus you could save on local bonds associated with new development, such as schools, parks, or road or transportation improvements.
• Traditional layout.
  People who love classic, formal dining and living areas will love older homes.