With home prices falling, it's a buyer's market out there. How do you find a great deal on a home in this soft market?
Glenn Kelman, president and CEO of the online real estate brokerage company Redfin, crunched the numbers to figure out which sellers are more likely to negotiate. Here are Kelman's tips on how what to look for when searching for a housing bargain:
Tip #1: Look for "price-reduced" signs.
If the price drops once, it's likely to drop again. Keep an eye out for a pattern of dropping prices. Once there is blood in the water, sharks can keep feeding. That being said, you can't ask a seller who has just lowered his or her price by $20,000 yesterday to drop it again today. But if they drop the price once, they're predisposed to drop it again.
Tip #2. Look for "fixer-uppers."
In the real estate market right now there's a heaven and there's a very large hell. Heaven is that small part of the market that sells very quickly. If you own a fixer-upper, you're in real estate hell because those houses just aren't selling right now. Buyers are scared of anything that doesn't look good. People who are selling fixer-uppers are more concerned about unloading the property than trying to make a big profit. But people who have invested a lot of money in remodeling have an emotional connection to the place and they are a lot less willing to negotiate. Key phrases you should search for are: "fixer-upper," "potential," "value in land," "investment property," "tender loving care," "contractor's special" and "as-is."
Tip #3. Look for homes owned for 10 or more years.
Someone who bought their place 20 years ago for $200,000 and is now selling for $900,000 is going to make $700,000, so it doesn't make much of a difference for them if they accept a bid $10,000 or $20,000 below their asking price. People who have a lot of equity have more room to negotiate than someone who's barely breaking even.
To find purchase dates and prices of homes in your area, visit your local county Web site. Most county tax assessors have put their databases online. Or you can look at real estate Web sites like Property Shark or Redfin.
Tip #4. Look for homes owned for less than three years.
Yes, these are flippers who have been caught short in this downturn and are just trying to get out without owing the bank anything. You can usually get them down to a price that just covers what they owe the bank. This also goes for builders who have just completed construction and have the financial wolf at their heels. The builders are usually the first ones to see the writing on the wall in a bad market, and they will give you big concessions.
Tip #5. Look for houses that have been for sale longer than 90 days.
You used to have to ask your real estate agent for information regarding how long a house has been on the market. You can still ask, but now you can also find all this information on the Internet, by actively searching Web sites for houses that have been on market for more than 90 days. If someone's trying to sell a house and it's been on the market that long, they're starting to get really worried.
Glenn Kelman's company Refin evaluated sellers' willingness to bargain by looking at 9,053 houses that sold via brokers in Los Angeles County, Calif.; Fairfax County, Va.; and King County, Wash., between April 15, 2008, and June 15, 2008. Below are the basics of what they found.
Houses that sold for a large discount off their asking prices were:
83 percent more likely to have been on market for 90+ days.
73 percent more likely to be marketed as "fixer-uppers."
52 percent more likely to have been seller-owned for 20 years or more but…
9 percent more likely to have been seller-owned less than 5 years.
28 percent more likely to have already been price-reduced.
20 percent less likely to feature a noteworthy remodel.
9 percent more likely to be a short sale or bank-owned.