BUYER CONSIDERATIONS –
It’s Okay to Pay Too Much
There has been a huge Paradigm shift in the real estate market. After years of home buyers sitting in the driver’s seat, calling all the shots regarding price and terms of negotiations, the advantage has officially shifted to home sellers. For many months now, there has been ample evidence that the best buyer’s market in decades, had finally come to an end. The tables have turned and in most growth areas, the buyer’s market of more than a six month supply of homes has officially turned into a seller’s market. Many areas, especially with lower priced properties, now have as little as a 2-3 month supply of homes for sale. The sellers in these markets are now empowered in the driver’s seat and are refusing to negotiate.
And, why should sellers negotiate? The math is simple. If a seller wants more money for their home, all they have to do is wait a few more months or until next season and buyers will have to pay an extra 10-12%. It’s a simple matter of supply and demand. The supply is dropping because we haven’t built enough homes to support the growing population, and the economy is improving bringing many more buyers into the market. One of the most difficult challenges facing all home buyers is recognizing that the ideal opportunities to get the best price and best selection are gone. Buyers must apply logic to their strategies and embrace the opportunities that still exist to get a good house at a fair price, because it’s only going to get worse. One need only look at 2005 and 2006 when a home buyer was fortunate if they had 2 or 3 homes to choose from and they had to accept the seller’s price and terms to avoid being outbid by dozens of other prospective buyers.
Let’s go back to the logic and math. Let’s say a buyer is looking for a home they really like that is worth $250,000, but the seller wants $275,000. If a buyer can afford the extra $25,000 (given down payment and appraisal issues), why not just pay it? Based on the prior year, the home is likely to be worth 12% more (use actual market appreciation for the prior year). In other words, in 12 months or less, the home will be worth 12% more ($250,000 x 112% = $280,000). If the buyer has to pay more to get a great home their family will enjoy for the next 10 years, so what? In less than a year, it will be worth every penny they paid for it. In a market with strong appreciation, it doesn’t make sense to overemphasize price.
So what advise should all buyers seriously consider? Focus on your quality of life and don’t worry so much about price. As the saying goes, “You can’t take it with you!”