Guidelines for real estate market

Rules of real estate changing as market cools
Before you buy, sell or invest, check out these guidelines to get the best housing deal

By Ruth Simon
The Wall Street Journal
April 1, 2006

As the spring selling season moves into high gear, the cooling housing market is upending the conventional wisdom that guided buyers and sellers during the housing boom.

The changing dynamics have implications for a variety of players in the real-estate market.

The number of homes for sale has climbed about 30 percent over a 12-month period, reaching its highest level in nearly 10 years, according to the National Association of Realtors. The group recently predicted sales of existing homes would drop 5.7 percent this year versus a 4.4 percent gain in 2005.

Higher mortgage rates are making houses less affordable in many metro areas. Rates on 30-year fixed-rate mortgages now average 6.35 percent, according to Freddie Mac, with rates on adjustable-rate mortgages moving up even faster.

What this new environment means for buyers and sellers varies from market to market. To be sure, sales are strengthening in some markets, including Albuquerque, N.M., and Indianapolis. But in many parts of the country, after several years of sellers calling the shots, 2006 is shaping up to be a market in which buyers are gaining bargaining power.

What follows is a look at what this means for different groups of buyers and sellers:
Sellers

Say goodbye to the days when sellers could simply look at what their neighbor's house sold for and then list theirs for 10 percent more.

Overpriced homes may never even catch the eye of their intended audience. That's because buyers and brokers increasingly rely on computers to screen listings based on price, size and other parameters when new properties come to market.

David D'Ausilio, a broker- associate with Re/Max Heritage in Westport, Conn., is counseling his clients to price their homes in the "bottom 25 percent" of comparable homes and cut their asking price by 3 percent to 5 percent if the listing doesn't generate several showings or written offers within three weeks.

Brokers also are telling sellers to fix problems that buyers might have overlooked in a more heated market.
First-time buyers

First-time buyers can be more thoughtful about their purchases and negotiate for a lower price, a more flexible move-in date or incentives such as seller-paid closing costs.

Some brokers are advising first-time buyers to leave a financial cushion instead of stretching as much as possible and counting on rising home prices to bail them out. They are also asking sellers to help with closing costs.
Move-up buyers

Move-up buyers face the delicate task of balancing a purchase with a sale. A growing number of buyers are making offers contingent on selling their current homes. But such offers often are frowned at because these deals are more likely to fall through.
Relocaters

Employers are looking for ways to ensure that homes don't languish on the market when an employee relocates. The number of company-ordered appraisals is growing as employers seek to get the price right before a house goes on the market, says H. Cris Collie, executive vice president of Worldwide ERC, an association of companies and professionals that relocate employees.

Collie expects employers to more aggressively enforce policies that require transferees to price their homes close to the appraised value. He also is seeing renewed interest in "loss on sale" programs, which compensate people who are relocating for losses if they sell below the purchase price.

Some relocation experts also advise transferees to shy away from buying a home in a new development because they will be competing with new construction when they sell.
Investors

Investors used to seeing quick profits in once-hot markets may be disappointed. In some new subdivisions, dozens of similar investor-owned homes are competing for buyers, says Craig Beggins, president of Century 21 Beggins Enterprises. "If you have any way not to sell right now, don't," Beggins tells investors. "If the neighborhood is brand-new and no one is living there, my advice is to rent it if they can."

But the decision to sell or rent can be tricky. Rental homes typically don't show well, says Bob Hamrick, broker-owner of Coldwell Banker Premier in Las Vegas, and often must be vacated and given fresh paint and carpet before going on the market.

LATEST STRATEGIES

As housing markets around the country cool, brokers are recommending new tactics:

• Some brokers are advising sellers to price their homes in the bottom 25 percent of comparable properties.

• First-time buyers shouldn't overly stretch their finances, expecting rising prices.

• Relocating employees should look for a home that will be easy to resell if they are transferred again soon.

Copyright 2006 IndyStar.com. All rights reserved