Smart Moves

There’s abundant evidence the real estate market is now going through massive change -- a reality acknowledged by leading housing experts.

“We’re witnessing a housing recession in terms of declining home sales and home building,” says Lawrence Yun, chief economist for the National Association of Realtors (nar.realtor).

But, as Yun notes, not all current real estate market trends are favorable for potential buyers. That’s because the inventory of available homes remains tight, and prices are lingering in the unaffordable range.

“Nearly 40% of homes are still commanding the full list price,” Yun notes.

Even so, many wannabe homeowners are breathing a sigh of relief because at least there are now fewer ferocious bidding wars.

“I wouldn’t say it’s a buyer’s market. But we’re not seeing the crazy 15 to 20 offers for a house that we saw last year. At most, we’re seeing two or three offers,” says Rich Harty, a Chicago-area real estate broker who works solely with purchasers.

These days, potential buyers seem to fall into two groups. One is excited at the idea of making a first home purchase in the current market and has no intention of backing off. The other is also anxious to buy, but more fearful of overpaying.

“For folks who really want to buy, I see no point in sitting out the current market and potentially missing the chance for that ‘perfect fit’ house,” says Harty, a past president of the National Association of Exclusive Buyer Agents (naeba.org).

“Whether you’re more attracted to buying in this changing market or repulsed by it has a lot to do with your personality type,” says Eric Tyson, a personal finance expert and author of “Let’s Get Real About Money!”

Renters who are eager to buy are typically optimists, while those waiting on the sidelines are often pessimistic about the economy and the potential for near-term opportunities in the housing sector.

After they’ve analyzed the overall situation, however, Tyson says even pessimists usually see the positives in buying a well-chosen property now rather than continuing to rent indefinitely.

“Renting year after year has its own risks. Obviously, rental costs could continue to rise substantially in the years ahead. And in the future, those who keep renting will be precluded from the kind of home value appreciation homeowners have enjoyed through the decades,” Tyson says.

There’s no such thing as a risk-free home purchase. However, you can improve your odds of a successful outcome if you think strategically. Here are a few pointers:

-- Conduct some economic research of your own.

As good as they are, national real estate forecasts are of less value to buyers than is information that helps them assess the area where they’d like to live.

To locate the parts of your metropolitan area that have the best prospects for appreciation, start with a regional map. On this, pinpoint major employers, such as corporate headquarters and military bases, where jobs are expanding. Locate communities with top public schools. Also, identify areas served by popular public transit lines, including light rail systems.

-- Think through your “personal economy” before deciding what to buy.

Would buying a well-priced home in a strong neighborhood be a good financial bet for your household if your monthly mortgage payments are more than you can afford? Absolutely not, Tyson says.

Despite tight mortgage lending standards, he says it’s still possible for many buyers to qualify for a larger mortgage than their finances warrant, thereby placing them at risk of a future default. That’s because your lender knows less about your financial obligations and spending habits than do you.

“A lot of your decision on how expensive a house to buy should hinge on your personal financial situation and job prospects,” Tyson says.

Before committing to any purchase, it’s always wise to review your budget and assess your level of employment security. Despite the country’s low unemployment rate, is your current job at risk? Do you have easily marketable skills that would allow you to quickly get another job if you had to?

-- Request statistics on property values prior to bidding.

Researching relative property values before you put an offer on a home is critically important.

“In a dynamic market, you and your agent should search for similar homes that have sold very recently, ideally within the last three months,” Harty says.

But data on comparable sales won’t give you the whole story. These days, you also need numbers to track the direction of the market -- whether prices are heading up, down or sideways. Ask your agent to give you data on the median price of a home sold this past month versus the month prior. Also ask for median price comparisons on an annual and yearly basis. These statistics should give you a good feel for the trend.

Use this information when crafting a bid for a property you like. If selling prices are moderating in your target market, you can be more assertive with your opening bid. Also, you may not need to waive your right to a home inspection, as many people did during last year’s bidding wars.

“In every market, there are highly motivated sellers -- people who absolutely must move for whatever reason. As a buyer, it’s now reasonable to expect motivated sellers to prove more accommodating to your needs,” Harty says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

If there’s one commonality about consumers these days, it’s that everyone, except the wealthy, are feeling financially pinched. Inflation means many people are cash-short.

“Consumer confidence fell for a third consecutive month in July,” says Lynn Franco, the director of economic surveys and indicators at The Conference Board (conference-board.org), which tracks consumer sentiment.

High gas and food prices continue to weigh on consumers, along with rising medical and child-care costs. But for young renters, no inflation issue is more painful than the sizable increase in apartment rents.

Meanwhile, many homeowners who want or need to sell a rundown property are confronting prohibitively high expenses to prep their place for market.

“Home shows on cable have created a nation of perfectionists about their real estate. But few sellers have the cash reserves to glorify their place like the TV shows portray,” says Mark Nash, author of “1001 Tips for Buying and Selling a Home.”

Indeed, longtime owners now living paycheck-to-paycheck are often unable to cover the cost of fundamental presale fixes, such as the replacement of a failed air conditioning system or a broken dishwasher.

“In the ideal world, sellers would spend whatever it takes to put their home in perfect condition. But few people live in that world. Money is especially tight nowadays for seniors and those with disabilities who rely on Social Security,” Nash says.

In past years, first-time buyer households -- many of them combining dual careers with child rearing -- were unwilling to consider a “fixer-upper.” But that’s now changing in desirable areas where available homes still remain scarce. There, well-priced “fixers” are once again on the radar screen of more first-timers.

Pam Gebhardt, a longtime real estate broker for Re/Max, says one motivational force causing young families to consider a fairly priced “fixer” is that they’re desperate to escape their rental units.

“In a lot of areas, rents are skyrocketing,” Gebhardt says.

Even so, it’s rare for young adults to accept a property in poor condition.

“Because most first-time buyers aren’t handy and don’t have the means to pay contractors, realistically only a minority are willing to consider a fixer-upper. But that’s still more than would have considered a fixer in the past,” Gebhardt says.

Here are a few pointers for those needing to sell a home in “as is” condition:

-- Engage an experienced agent for candid counsel.

Owners planning to sell a home that’s rundown are wise to seek a listing agent willing to serve as a project manager, says Eric Tyson, a personal finance expert and co-author of “House Selling for Dummies.”

“The right agent will spare you costly errors,” Tyson says.

Ashley Richardson, an agent affiliated with the Residential Real Estate Council (crs.com), says a skilled agent should give you a list of doable tasks.

“For example, you wouldn’t want to put high-end cabinets into the kitchen of a house that’s in overall poor condition. But you might want to have your current cabinets repainted,” she says.

As the first step in the agent-selection process, Richardson recommends you interview three candidates, asking each to critique your home and itemize cost-effective steps that would make it more saleable.

“You want someone who will look you straight in the eye and tell you the truth, not someone who just tries to flatter you into giving them the listing,” she says.

-- Seek assistance for the purging process.

Many owners trying to sell a home in poor condition feel overwhelmed by the sheer magnitude of the work facing them. Decluttering is especially daunting for those with health problems.

“Sellers who can’t do this work themselves should ask family members and friends to help,” says Richardson, who sells property through Long & Foster.

But what if no volunteers step forward? In such cases, Richardson suggests that owners may wish to hire students or others looking for temporary, part-time work.

“Post an ad asking for help ‘pre-packing for a move.’ And be sure to check background references on any stranger coming into your house,” she says.

Richardson recommends you give the person you hire a series of manageable tasks.

“For example, tell them to pack up the contents of your china closet or an overloaded bookshelf,” Richardson says.

It may seem counterintuitive for the owners of a home priced for an “as is” sale to bother with the removal of clutter. But Richardson says it’s essential.

“No one will buy a house if they can’t even see how large its rooms are,” she says.

-- Help potential buyers picture your home’s possibilities.

Though most owners of property in poor condition lack funds for major improvements, Tyson says it’s important that they make their place at least minimally appealing.

“Nearly all buyers now preview properties online. If they don’t like what they see there, they’re unlikely to go visit the place,” he says.

Besides clearing out your clutter, you’ll want to remove any beat-up furniture or window coverings that make your place seem dark and drab. Your agent may have a stock of furnishings to lend you that would make your place look fresher.

In addition to cosmetic touches, Tyson says the owners of a rundown home should consider providing visitors with mock-ups and contractors’ estimates for needed improvements.

“Always remember that most people are devoid of imagination -- meaning they’ll need help to envision how great your house will look once all the necessary work is done,” Tyson says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

For those struggling to buy a first home for two years or longer, it’s small comfort to know the pace of price increases has slowed and bidding wars are less common than before. Many novice buyers have yet to score an affordable place due to price constraints.

Frustrated buyers need a sound breakthrough strategy, says Steve Israel, the broker-owner of an independent realty firm that caters to homebuyers. He suggests one strategy for income-tight consumers to consider: buy a rental unit.

“Absolutely, it’s possible to get a good deal on a house that’s now a rental or was previously rented. But you and your agent must be extremely careful to do serious research on the property,” Israel says.

Fortunately, many sellers are now more open to negotiation as the home sales market slows down.

Dawn Templeton, who heads an Idaho realty firm, says, “The market is cooling off a tad. There’s more balance between buyers and sellers, and sellers are making more concessions on repairs.”

Israel says some of the most-willing-to-negotiate sellers include the disillusioned owners of properties that were converted to rental units.

“Many of these folks never intended to become landlords and they dislike the headaches,” he says.

“The owners of rental property who live far away are often so eager to sell that they’ll give you a very good price,” says Sid Davis, a Utah broker and the author of “A Survival Guide for Buying a Home.”

“Think of the hassles of trying to manage tenants and keep up a house when you live hundreds of miles away. Then combine that with the reality that a lot of people just can’t stomach being a landlord,” Davis says.

Here are a few pointers for buyers pondering the purchase of a rental:

-- Investigate the property when the tenants are away.

With rare exceptions, those living in a rental home are usually unhappy to learn that their landlords plan to sell, forcing them to move.

Some tenants, in an effort to sabotage the sale, will make derogatory remarks about the owners and about the underlying condition of the property.

Davis urges buyers trying to evaluate a rental property to schedule their visits at times when the tenants are away.

“That way, you’ll avoid the annoyance of having the tenants follow you around in the house. You’ll also feel a lot more comfortable scrutinizing the property,” he says.

-- Make sure you get a serious home inspection.

A fair number of rental properties are overseen by professional managers. Still, they rarely receive the same level of attention as owner-occupied homes. That’s why it’s important to make any bid conditional on a satisfactory home inspection.

“Every house should get an in-depth home inspection. But this need is especially great for a property that’s served as a rental, either currently or in the past,” Israel says.

Davis says one way to find a qualified home inspector who serves your area is to go to the website of the American Society of Home Inspectors (homeinspector.org).

“Ideally, you’ll gather the names of at least 10 candidates and then narrow your list to three who you can interview by phone,” he says.

Davis recommends you avoid hiring any inspector who’s also in the home-improvement business.

“Watch out for any guy who tries to contract with you for home improvement or repair work,” Davis says.

If a comprehensive home inspection reveals only the most minor of problems, the rental unit you’re considering could qualify as a legitimate “diamond in the rough,” according to Davis.

-- Seek cost estimates for potential repairs.

As a real estate investor, Davis once owned seven rental properties, all of which he’s since sold. His experience as a landlord taught him that tenants often fail to tell their landlord about problems unless they become serious.

“Suppose the dishwasher has malfunctioned for a year, yet the landlord has never heard about the problem until a home inspector determines that the dishwasher leaks and must be replaced, along with the subflooring beneath,” he says.

Davis says the prospective buyer of a rental -- or any property for that matter -- should determine in advance how much needed repairs will cost. Before finalizing your bid, he recommends you get estimates for all the work on your inspector’s list. Then make sure these costs are factored into the price you negotiate.

-- Rule out houses with major issues.

In those neighborhoods where available homes are still in short supply and buyers continue to outnumber sellers, bargain properties are still tough to find. Even so, Davis says those who keep an open mind about purchasing a rental unit could still get a good house for an under-market price.

The key to finding a genuine bargain in a rental unit is to carefully consider each property on its own -- upsides and downsides.

“The reality is that some rental properties, especially those that have been occupied by tenants for five years or longer, are a terrible deal that would drain your savings and make your life miserable. But a house that’s been rented out only briefly could present a wonderful buying opportunity,” Davis says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)