San Carlos First Time Buyer’s Tip: Don’t wait for the price reduction…

June 30, 2009

price-reduction

price-reduction

The Three Outcomes

As a home buyer, you've likely made up a list of homes that you want to see.  These homes made your list because they met some or all of the preliminary criteria you put in place for your ideal home;  price, location, bedroom/bath count, school district, etc…   Since you've done your homework, you've weeded out the ones that are out of your price range, or have some sort condition that's a show stopper for you.   So your list is already “qualified.”

You now get in the car to head out and “tour” these qualified homes.   As you exit each one of these houses, your brain will automatically file each one into one of three basic categories:

  1. You like the house, and you think it's priced well.
  2. You don't like the house, regardless of the price.
  3. You like the house, but you think it's priced too high.

The outcome of the first two scenarios if obvious — you'll likely jump at writing an offer on the first, and you'll never write an offer on the second.   But interestingly, many buyers miss out on that third category of homes.  Why?  Because they simply move on to the next house, assuming this one will never be a good deal…or, they decide to sit and wait for the price to drop to a point that it will be a good deal.   Neither of these choices is necessarily the best, but more on that in a bit.

The Honeymoon.

When a home hits the market in San Carlos, you'll generally know within the first 14 days whether it “hit the mark” on pricing.  Why 14 days?  This allows time for a broker's tour, and at least one open house weekend, and then a day or so to take offers.  I call this the “Honeymoon Period.”   Generally speaking, if a home isn't snapped up within this period, the market has effectively spoken with its feet that something isn't quite right with the pricing.

That's a pretty bold statement, but I contend that the stats on this blog back it up.  Even in slow times, the demand is high enough in San Carlos that new listings have been disappearing inside of the 14-day window when they're priced right.

The 30-day price reduction.

When a home hasn't fetched a buyer during the honeymoon period and there's no clear indication that one's on the horizon, sellers start to plan for the inevitable price reduction…after all, the market has spoken, right?   And when do they normally reduce the price?  Right at the 30-day mark.  Why?  I have no idea, other than it's a big round number.   But the “why' isn't important.  The fact that the market has become conditioned to expect a reduction at about the 30-day mark IS important.

And this is where the buyer's mistake comes in.

Wait, and expect company.

Our hypothetical buyers above has now found a home that they like, but they think it's priced too high.   So they decide to wait.  Sure enough, they were  right…the honeymoon comes and goes without an offer,  and now it's knocking on 30-days.   Almost magically, the seller has softened up and drops the price at the 30-day mark to something that makes more sense.    Suddenly, our Category 3 home becomes a Category 1 home.  Eureka!   They've got the seller over the proverbial barrel.   They jump in to start the negotiation..  But what's this?

We've got company…

This sure-fire negotiation strategy has now backfired, because it has become a multiple-offer situation.  Why?  Because another buyer did exactly the same thing.   They waited for the price to drop to where it should have been in the first place before starting the negotiation.   Now, any leverage they thought they had by letting the home languish on the market is gone in a flash…simply because there's another offer to compete with.

Do your homework, drive your deal…

What should have our unlucky buyers done to avoid this?  Clearly, if a home is over-priced, there will be a mountain of data from comparable home sales to prove this fact.   A good Realtor who knows his target-market well will know that a home is over-priced almost intuitively, and can back up this “gut-feel” with solid data.

Rather than wait for the seller to make the first move, the buyer should write an offer (no verbal what if's) based on what they truly believe the home is worth.   The more facts they can present in a non-threatening manner to back up their position, the better.   Note that this is far different than submitting a low-ball offer.   You're not insulting the seller, because you have market data to back up your price.    With facts in hand, the worst thing that can happen is that seller says no, or counters your offer.

Or, better yet, you'll get the house you want for the price you want….while everyone else is just waiting.

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For First-Time Home Buyers” is a new category on the site that's a resource for first-time home buyers in San Carlos, and for those who have general real estate questions.

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1 Comment

  1. Sandy on June 30, 2009 at 6:30 pm

    4th Option – Check out better houses at cheaper prices on the Oregon Coast!
    http://fawnridge.florenceoregon.net/fawnridge-data/21.html

    Congrats on your Relocation.com recognition!
    http://www.reuters.com/article/pressRelease/idUS176714+25-Jun-2009+PRN20090625



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