Mythunderstandings of the Housing Market
Expert Barbara Corcoran appeared in the Today Show a while back, talking about some of the myths that the slow property market has created. She's right: I have come across most of these during my dealings with buyers and sellers:
1. "The longer a house has stayed on the market, the more you can negotiate on the price" - This is not always true. More typically, if a home has stayed on the market it is because the seller is unrealistic on the price, and holds on stubbornly to his/her idea of value. However, personal situations do change and I have found sellers that were once "ice fishing" for a buyer with no real motivation can suddenly get some urgency to sell. In these cases the myth is true...
2. "Today's sellers are all desperate" - again, not always. It depends on their motivation for selling. Someone who has been transferred through work or a divorcing couple would be much more motivated than someone looking to upsize or to upgrade...
3. "You need 20 percent down payment" - not true, you can get FHA loans with as low as 3.5% down, and often you can negotiate for the seller to pay closing costs.
4. "You must wait for the market to bottom out before you buy" - picking the very bottom of the market is as easy as picking the bottom of the stock market - virtually impossible! The fact is that by the time people realize the market has bottomed, it will already be going up...
5. "You need AAA credit to buy a home these days" - although lenders have become a lot more selective, you don't need stellar credit to get a loan. Once again, FHA allows loans for people with not-so-stellar credit.
1. "Now is the absolute worst time to sell" - not necessarily. If you are trading up (upsizing or buying a more expensive home), you will pick up a discount on the buying side that will more than offset your loss on the selling side.
2. "Never respond to a lowball offer" - why not? Having an offer is much better than not having one. It shows that the buyer prefers YOUR home over dozens of others, and it should be considered as a "starting point", so take the opportunity to start a negotiation. Buyers initially try to get a super-bargain (why wouldn't they?), but most know that their first offer is unrealistic and will respond well to a reasonable counter-offer from the seller.
3. "The first offer is never the best offer" - this mythunderstanding is a carryover from the boom-time market. In a rapidly appreciating market, this may be true. However, in a declining market, the first offer you get is probably going to be the best. Even a few weeks will add further down pressure on property prices.
4. "I can always reduce my price later" - this proves to be the wrong strategy in almost every case. The longer the property stays on the market, the larger the discount that a buyer will want, because they will perceive you as being more desperate. It is best to price your home aggressively from day one, and sell quickly (see #3 above).
5. "Before you refinance your home, shop around" - for refinancing, nine times out of ten the best choice will be your current lender - who has the most to lose if you take your business somewhere else. Most times your current lender will also waive the closing costs for a "re-fi"...