Smart Moves by Ellen James Martin

Find a Good Deal at a Challenging Time

A couple in their late 30s are in a state of panic. They've sold their three-bedroom townhouse, but can't seem to find the sort of affordable house they're seeking for their growing family.

"A shortage of inventory is their biggest problem. But they're also panicked about the potential for much higher mortgage rates, which would reduce their buying power in the future," says Ashley Richardson, the real estate agent working with the couple in this true story.

In many ways, buyers are now confronting a "perfect storm." In popular neighborhoods, affordable properties remain scarce. Meanwhile, federal spending projections for the incoming administration have led many economists to project the possibility of significantly higher future mortgage rates.

"This couple has just 40 days to be out of their townhouse," says Richardson, who's affiliated with the Council of Residential Specialist (www.crs.com).

For this couple and other wannabe trade-up buyers, she says the costs of delaying a purchase could be considerable. The expenses associated with a temporary rental can mount quickly, as can costs related to storing household items. And those who delay also face the possible risk of higher mortgage payments.

Tom Early, a veteran real estate broker, stresses that no one can be certain about the future trajectory for mortgage rates. But he says it could still be better to buy sooner rather than later, assuming you can find an available home that meets your requirements.

Here are a few pointers for buyers seeking a fair deal in the current market:

-- Educate yourself on local property values before you bid.

Eve Alexander, a longtime broker who works solely with homebuyers, says they need context on prevailing values to make certain they don't bid too much.

"For comparisons, try to identify five to 10 comparable properties that have sold recently in the area where you're looking," Alexander says.

If you're seeking to buy in a neighborhood with widely varied properties, it's helpful to compare the homes on your list on a price-per-square-foot basis. Then adjust for differences in size and home features, such as a larger garage or extra bathroom.

After estimating the current market value of the home you wish to buy, it's time to decide how aggressive an offer you want to make. Alexander says that will depend on how enamored you are with the home.

"It's always easier to negotiate without emotion if you can find second and third choice houses you also like," Alexander says.

Once you've made a firm decision on your bid, she recommends you attach a brief but friendly letter that explains your position and draws on comparable sales data to support it.

-- Don't use comparables from "market testers."

Eric Tyson, co-author of "Home Buying for Dummies," says in every market there are a few sellers who won't budge from an unrealistically high price.

Tyson recommends you ask your agent to find out if previous offers have come in on your desired property. If the owners have already rebuffed one or more decent offers without so much as a counterbid, this indicates they'll probably resist reason with you, too.

The good news for buyers is that information on past offers is often readily available through the listing agent.

While there's no harm in trying to reason with market testers, Tyson says you can waste a lot of time and energy trying to budge people who won't even entertain a fair offer. Better to look for someone truly anxious to sell, perhaps because they're making an out-of-state job move.

"Locating a really willing seller is the key to finding a fairly priced house," Tyson says.

-- Attempt to find out about the seller's equity position.

Are you seriously interested in a home, but have yet to submit an offer on it? If so, Alexander says it's wise to inform yourself on the sellers' ownership stake before you bid. As she says, those with more equity have more potential room for compromise.

"What you're looking for are insights into the mindset of the sellers," Alexander says.

One source of clues on the owners' equity position can be found by searching local government land records. At the minimum, these records (usually available online) should tell you when the current owners purchased the property and the original price they paid.

"If the sellers bought the house a couple of decades ago and haven't refinanced, they should have a lot more equity," Alexander says.

-- Request that your agent pose questions to the listing agent.

When owners have an urgent need to sell, it's normally against their interest for that information to be broadcast to the world because it could weaken their bargaining position. Even so, Alexander says many listing agents will readily divulge such client information in response to questions.

Another way prospective buyers can gauge the sellers' level of motivation is to ask nearby neighbors. Alexander recommends that the buyers pick a weekend time to walk through the community, chatting with a few residents about the pros and cons of living there. In the course of the conversation, they'll likely tell you what they know about why nearby homes are for sale.

"In many cases, well-informed neighbors will be happy to give you the inside story," Alexander says.

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