I originally posted this article on Facebook on December 6, 2010, but several times/week I get questions from all kinds of buyers looking to make a first home purchase, buy a first investment or expand their portfolios and I thought this was pretty relevant still. Though our market in the Phoenix Metro Area has changed- then there were over 45,000 homes, today there are just under 27,000 homes on the market and of those just over 19,000 are available with no pending contracts. The info is still very much relevant and I hope it provides you with the "lightbulb" you've been looking for to start (or continue) your search for real estate.
When I ask most potential buyers I meet what they want in a home they tell me they want a “deal”- some go a step further and say they want a “smokin’ deal”. In a market where there are over 45,000 properties listed, one would expect that to be pretty easy. BUT, in fact buyer’s searching for a quality home (structurally & mechanically sound), in a good area at a good price will tell you otherwise. It seems like every day I have a buyer shaking their head saying “I just don’t understand how there are NO good houses to buy with so much on the market!” Here in metro Phoenix, where the average sale price for a home is $163,506 and affordability is relatively high, the competition is fierce.
“One man’s trash is another man’s treasure” always comes to mind. What may be an awesome deal to some is trash to other buyers. Knowing what you want in a home is the first step in making a prudent real estate purchase. Though many homes on the market are the product of our overall distressed economy, many are not the “turn-key” or move in ready homes that most buyers crave. They may need new interior or exterior paint, repairs from deferred maintenance; appliances may have been taken, at a minimum. Others are literally stripped bare from desperate homeowners trying to salvage anything/everything they can as they lose big on a bad investment.
As a result, many of these homes are “undesirable” leaving door open for the next buyer who is willing to roll up their sleeves and put a little work into a home. Because of this, there are deals to be had for those willing to put their time and money into it. Don’t exclude a home just because the appliances are gone, as I’ve literally seen some buyers do. If you are in a position to put down 10% or more on a home pull some of that money from your down payment and earmark it towards repairs. For instance, if you are buying a home for $200,000, and new appliances or repairs cost $2,000, that represents only 1% of the total cost of a home. That’s almost nothing considering you are making a direct investment in the home itself. Ask the seller for a $2,000, credit toward your closing costs instead and that’s $2,000 more than you would have had otherwise.
This leads me to my next most likely way to find a deal. Often homes that sit on the market for a long time gather the speculation that “something’s wrong with it”, when it may in fact be that it’s always been buyers' 2nd choice. It may have had a contract fall out or the seller just priced the home incorrectly and they’ve “chased down the market”. Do not discount these homes. Most sellers that want to sell will get to a point where they just want the home SOLD and they may discount the purchase price or make concessions that they would not have otherwise considered earlier. Always hire a professional do an inspection to verify the true condition of the home.
Next, I don’t think any buyer is concerned about insulting a seller with an offer, but don’t throw something ridiculous out there to “test the waters”. Make an offer you could live with in a “take it or leave it” fashion and see where it gets you. My best discount to date was a home that had been listed for 192 days with a list price of $575K. After making an initial offer of $480K, My clients ultimately purchased this home for $505,000! Three thousand dollars made this deal. The sellers waffled at $502K, but at $505K the deal was done. Persistence and patience usually pays off if a buyer is truly serious.
The next thing to consider is location (how accessible are jobs, goods school and amenities like shopping, dining and recreation). It’s the first rule of real estate. Buying the smallest dumpiest home in the best neighborhood is always more prudent than buying the biggest and most expensive home in the neighborhood. The sale for $505K I mentioned was exactly that; a smaller, well-maintained home on 1 full acre without the niceties one would expect in the tony neighborhood where it was purchased (the home 2 doors down is literally listed today for over $2M! After planning a larger remodel in the future, I don’t think it will be long before this home comes somewhat in line with what the values the neighborhood will bear. It will never be a $2M home, but it will come closer to the $1.434M average that this town had in the last year.
Putting all the details on paper is also a good way to figure out if you have a good deal on your hands. Expenses like taxes, HOA, utility costs and more can make or break a deal, literally. For instance, my family personally bought a home last year that was about 800SF larger than our previous home that we sold, however, due to the fact that the home we bought had newer heating/cooling systems, newer low-e windows and other energy saving features, our utilities are roughly the same! So the net cost of our new home after buying it as a foreclosure from a bank is really only a few hundred dollars more than we were paying before- more than worth the cost for a bigger home with more amenities. Consequently, buying a home with substantially higher taxes or insurance costs, a steep HOA or older mechanical systems or more yard to maintain, etc. can really make what seems like the best deal really more like a financial disaster.
My last recommendation to find a good deal is to consider the traditional seller who is not facing foreclosure or having to short sell to get his/her home sold. These sellers may be the ones who bought their home cash, 20-30 years ago and/or has paid down the mortgage to an insignificant amount. These folks that HAVE to sell and their hand aren’t held by a bank as to what they can or can’t sell represent a HUGE opportunity for buyers. Not to keep bringing it up, but this was the situation for those same folks who bought their house for $505K, as well. The sellers were going through a divorce and had to liquidate assets. They were not short-selling the home. Mind you they were not happy about taking the $110K hit from when they purchased it 6 years earlier, but they could do it and still walk away with about $1,000 in each of their pockets.
Please keep this in mind when you are out there looking. What seems to be the boring, least sexy property can truly pay off if you have the vision to look beyond the obvious: a too high price, so-so condition (or worse) and a long time on the market.
This is where it pays to have a licensed professional representing you and helping you to do this legwork. I regularly do this for my clients and if you’d like me to help you with this process, let me know. I’m happy to do it again. Even if you don’t live in my area, I’m always happy to lend an ear and give my honest opinion.