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By Tara-Nicholle Nelson | Broker in San Francisco, CA

5 Strategies for Navigating the Summer Clearance Sale - on Real Estate!

Home prices are low, interest rates are low - real estate is basically having a summer clearance sale! But unlike buying a clearance-priced car or computer, making the wrong move in this real estate 'sale' can have disastrous effects, from losing your dream home due to a bad bid to ending up with a money pit of a property.


Here are a few money-saving, pitfall-avoiding tips and tricks for buyers who want to do some smart home shopping this summer.


1.  Have a vision in place, before you start your house hunt. Actually, have several visions in place.  Have a financial vision, complete with a clear picture of what your total income and expenses look like, in the  “after homebuying”  view, including what you pay out for your home and related expenses, like HOA dues and homeowners’ insurance.  Have a vision of your life in your new home, including what you want to do, with whom and where you want and need to go - in the work, family and recreation areas of your life.

If you kick off your conversations with your mortgage broker and real estate agent with a clear understanding of the lifestyle you are looking to create, you’ll be much less likely to get derailed. With a clear vision in place and, ideally, on paper, you can clearly communicate your wants, needs, goals and financial boundaries to your professionals, telling them what you can afford, rather than trying to shoehorn your financial plans into one-size-fits-all mortgage guidelines. With a vision, the temptation of an uber-low-priced, but completely inappropriate, home will not lure you into buying the wrong place for your needs. (Nor will an amazing home that is simply out of your personal price range - no matter how great a value it is for the money!)

2.  Don’t let affordability get between you and reality. High affordability doesn’t necessarily mean you can get every single thing you want  - and name your price. The fact is, even people who are spending millions for their homes don’t get everything they want!  I’ve seen buyers insist that they need X number of bedrooms and Y number of bathrooms in move-in condition for a price that is just not going to happen, even in this clearance sale climate, and end up looking and looking, ad infinitum.

If your agent has shown you home after home that is what you want, but has sold for more than you want to spend, and you’re confident that you can find or cut a better deal because the market is down and you just os happen to be a brilliant negotiator (!), you might be at risk of falling into this trap.  There are deals to be had, but if you don’t stay grounded in reality, you’ll end up chasing your tail and missing out on the tax and lifestyle advantages of homeownership.

If you’ve been house hunting for months and months on end, your agent keeps trying to tell you that you should search in a lower price bracket, you have repeatedly gotten overbid or you just can’t seem to find the precise home you seek in the location and price range you seek, at least consider the possibility that you might have an outsized wish list for your budget. Take a step back, revisit your vision, and remind yourself what’s really important.  It’s okay to save some “must-haves” and “deal-breakers” for your next home purchase!

3.   Get a local expert to brief you on the local market, then screen out the noise.  Now more than ever, it’s essential to have laser beam focus on the information and strategies that will get you what you want - whether it’s an amazing deal on the home you’ve always wanted or simply success at becoming the owner of your first home at a price you never thought would ever be possible. Otherwise, you’ll end up all over the place, spending your time, money and sanity attending auctions, getting worked up over distressed properties that aren’t yet for sale, trying to negotiate deals with sellers who are in no position to cut them and having your lowball offers on bank-owned properties rejected time after time.

Don’t let a news story about a guy in Minnesota who got a home for $3.27 be the basis for your entire home buying strategy. Instead, ask around and get referrals to a local broker or agent who has a track record of helping the people you know.  Read their answers on Trulia Voices and ask them your own questions to get a sense for whether they might be a good fit for you - if they are, and you trust them, then consult with them on the dynamics of your local market.  The market is down everywhere, relative to 2006.  But some markets - and some neighborhoods within markets - are still seeing multiple offers and home prices which are relatively recession-proof, compared to what you’d expect from the national news.  

Once you have a strategy in place, work it - don’t let your acupuncturist or shoe repair guy convince you that your strategy is wrong, that you could get the place for cheaper or that the bank should absolutely do every single repair, or you should walk away from the deal.  Many would-be buyers lose out on great homes because they take negotiating advice from their holistic veterinarian over that being offered by their broker or agent.

4.  Read everything. Good faith estimates. Contracts. Disclosures. Inspection reports.  There is a long, long list of multi-page documents that are very easy to “just sign” when you’re in the heat of the hunt and think you’re on the scent of an amazing deal. I’m not suggesting you ask for a week-long pause button to read every document, either - rather, read them when you get them, ask questions, and keep asking until you understand the documents.

Many buyers this summer will make offers on more than one home before they get into contract on “the one,” and many of those properties will be short sales or foreclosures.  With distressed properties, every contract is different, so it behooves you not to go on autopilot, just skimming the papers as you might otherwise. Also, inspection reports might reveal red flags and condition issues that you’d normally expect to see in the seller’s disclosures.  It’s especially critical, in these situations, to fully understand as much as you can about the property, your loan, and your obligations and due dates under the contracts.

5.  Stop your mental accounting and do the actual math - on paper.  In the field of behavioral economics, mental accounting refers to the tendency we humans have of doing math in our heads, separating things like easy money (e.g., the so-called “instant equity” from buying a home for less than it’s supposedly worth) from hard-earned wages and salary, and making spending decisions differently from these different mental accounts.

On the scent of a good deal, and in the heat of the hunt, even the most meticulous homebuyer can go up a few thousand in offer price to beat out other buyers.  No problem, right?  Well, but then when the inspector uncovers a few needed repairs, they make a mental guess as to what they’ll cost, and add that in - again, mentally. Then, when the lender requires a few extra thousand bucks than expected to close, that goes on top, but again, only mentally.  And mental money tends to stretch a bit longer than real money does! 

So, you can see how it’s  possible to break the bank when you thought you were in great shape because you scored such a great purchase price for the property itself.  


Even if you hate budgets with every iota of your being, buck up on this one project, pull out the calculator or open up a spreadsheet and keep track of every line item. Get actual repair bids during your inspection period, to the extent possible, and get your math mojo on. It’s fine to buy and incur these overages here and there, but keeping track of them is key.  You know what I like to say - surprises are for birthday parties, not for real estate transactions, and not for your bank account, either! 

Keeping a strict tab on the expenses you incur during the transaction - or will need to incur afterwards -- will save you so much drama later.


P.S. - You should follow Trulia and Tara on Facebook, too!

Comments

By Katherine Waters-Clark,  Wed May 18 2011, 15:47
Nice post and lots of GREAT information to share with Buyers. Thanks for posting! Katherine Waters-Clark, Realtor
By Helene Moore,  Wed May 18 2011, 23:12
Great information .
Thanks for posting.

Helene M Moore Windermere Prestige Properties Henderson Nevada
By Tamara Schuster Broker, Agent,  Thu May 19 2011, 00:10
Many good points here Tara. I especially like "Have a vision in place, before you start your house hunt." It all starts with a vision was one of my most recent blogs.
By Sandy Bliven,  Thu May 19 2011, 04:56
Great information, will repost it!
By Michele Torrence,  Thu May 19 2011, 04:58
Fantastic information to sahre with consumers. Thank you again Tara!
By Jenet Levy,  Thu May 19 2011, 05:08
Very good article. Bloggers on here should follow your lead in posting real content.
By Tpaul6,  Thu May 19 2011, 05:19
In my 59 years on this Earth, I have yet to find a Broker/Agent who had my best interests in mind and knew the property better than your local holistic Vegetarian.
By Vanessa Gray,  Thu May 19 2011, 05:27
I love this. Keep the information coming.
By Suimar,  Thu May 19 2011, 05:29
thanks for all the information, you peoples send for us.
By Richard Meinke,  Thu May 19 2011, 05:35
Very good information. I will share this also. This is a good article for serious buyers and why to work with a Realtor. We can help them search for additional info, answer their questions, & if we are not sure of the answer, we have ways to get the definite answer. Thank you for sharing this.
By Rachel Callihan,  Thu May 19 2011, 05:39
This is exactly what I have said to potential buyers....of course some of them listen and some don't!
By Nancy Rizzo,  Thu May 19 2011, 05:41
I plan to copy and share with my clients. Really great summary and realistic scenarios. Thanks for addressing these issues it is especially helpful in this market.
By Carla Baumgardt,  Thu May 19 2011, 05:47
This is great information! I can't wait to share this with my buyers!
By Mike Barsanti,  Thu May 19 2011, 06:03
What area between Phoenix and Lake Pleasant is nice and has value for under 150K ?.....Michael
By Diane Harmon,  Thu May 19 2011, 06:04
Very well said. We tell our buyer's this same information but it takes loosing a couple fo deals before they wake up and see the light. Thaks so mcuh.
By Diane Harmon,  Thu May 19 2011, 06:06
Well said. It takes buyer's loosing a couple of deals before they wake up.
By Andrea Deranian,  Thu May 19 2011, 06:09
Nice solid advice. Really helps the buyer focus!
Andrea Deranian, Trillium Real Estate
Ann Arbor, Michigan
By Darrell Bauguess,  Thu May 19 2011, 06:17
Super Post and will share with my clients.
By Frankkesselring,  Thu May 19 2011, 06:30
Finally. This is the substance and clarity that all of the articles out there should contain. Thank You
By Debra King,  Thu May 19 2011, 06:49
Excellent article, I will share with my clients, especially Item #2, about not letting affordability get between you and reality. Because prices have fallen so much, many buyers think that they can offer any price, on any house, in any location and the sellers will accept the offer. The truth is, prices have already fallen dramatically and if the home outshines other competing properties, it will sell and not at 20% below the already reduced price.
By Bob Maiocco,  Thu May 19 2011, 07:02
Insightful points. I find that is is also important for buyers to "forget the past" especially when trying to determine the value of what looks like a great deal. Just because a home was worth $3mm in 2005 doesn't mean that it is a great deal at $2mm today. Maybe it's just a $1.5 mm home. Likewise the costs of repairing/replacing years of deferred maintenance can take a great deal and make it average...
By June Green,  Thu May 19 2011, 07:36
Thank you for the information this really helps alot.
By April Neuhaus E PRO and SFR,  Thu May 19 2011, 07:44
Excellent points - I think the most important one for the Colorado Front Range area is that we as agents can offer a huge needed service by educating our clients on exactly what is happening locally in the market they are wanting to buy and sell in - as opposed to everything they are hearing in the news. So we can be their partner to cut out the propaganda and give them the actual facts to make an informed decision!
By Scott Adams,  Thu May 19 2011, 08:34
Great info; a must-read for anyone wanting to take advantage of today's market.
By Jason Korn,  Thu May 19 2011, 08:35
Fantastic info Tara! Thanks for sharing this.
By Pat Morgan-Svetlik,  Thu May 19 2011, 08:41
Tara - you hit the nail on the head! The real estate news that is happening in some cities does not reflect what is going on in your city! I am going to share this report with my buyers.
By Charie Zamora,  Thu May 19 2011, 09:07
Very good advice, and useful for my coming "look see" trip to Florida this summer. Keep them coming please!
By Helen Oliveri,  Thu May 19 2011, 09:35
Great Strategies Tara
By Natasha Nikolaeva, Realtor,  Thu May 19 2011, 10:31
Agree, keeping realistic expectations is a must. After all, when REOs/Short sales become a history and affordability lowers - few will be left still "chasing a rainbow".
By Nancy Ripley,  Thu May 19 2011, 10:31
Keep the great posts coming. You have a way of saying things in "plain english". Thank you
By Natasha Nikolaeva, Realtor,  Thu May 19 2011, 10:32
Great article Tara!
By Jane Colletti,  Thu May 19 2011, 11:11
Great post. Great information.
By James Trapasso,,  Thu May 19 2011, 11:14
VERY USEFUL AND TIMELY INFORMATION. Keep up the good work.
By Diana Marcus,  Thu May 19 2011, 11:43
Thanks!
By Wayne Lubin,  Thu May 19 2011, 12:03
Super information for buyers to make an informed decision!
By Mark Harrison,  Thu May 19 2011, 13:22
Terrific post: The media has painted doom and gloom, but it does not reflect pricing in every city. Properties that are priced at market and in livable condition receive multiple offers. We need more agents to stand firm and tell our buyers it is a waste of time to write these low ball offers. Unless you are a cash buyer the idea of 70 cents on the dollar is not going to happen. We as professional agents get paid to close deals not write offers. Its sometime hard to tell our buyers they have Nordstrom tastes but big lots budget.
By Constance Tumlin,  Thu May 19 2011, 13:44
Working with an informed agent is key, as is your post. As a buyer I find it EXTREMELY valuable to work with an agent who is well versed in short sale properties. She is keeping me posted every step fo the way, and is keeping my hopes high in the process. Looking forward to moving in to my new home at some point in the near future!
By Diana Burton,  Thu May 19 2011, 16:02
Great information, especially for buyers to get a good agent who knows local conditions. Here on the Chesapeake prices have dropped 30% on average since Sept. 2008, but we get lots of buyers who do not realize that prices have not dropped as much as in California, Florida waterfront and come with lowball offers which put the owners in no mood to negotiate with them. You have to come with a realistic price offer in this area, because there are fewer distressed sales than in other parts of the country.
By Pat and Steve Pribisko,  Thu May 19 2011, 17:47
Great post, as usual.
By Darwin,  Thu May 19 2011, 20:27
Psychological Warfare from this broker dominated blog .. If you are a strong buyer, do not let them pitch you to Paying Retail in this down market and economy .. yes in SoCal, brokers are a spoiled devious bunch in this still overpriced market .. keep making low offers, partticulkarly if you are cash, and remember that few brokers, will tell you the truth. Do your own research, it is ot that difficult and Due Diligence .at every turn .. An honest broker is difficult to find and even then at some point will convincde a byer to overbid with all of the childish pursasion as to why a buyer needs a particular property .. do not hesitate to change brokers at the blink of an eye
By Darwin,  Thu May 19 2011, 20:40
for Mark Harrison -- so you do not get paid to write offers and you bully your buyers .. not buying it, all bravado, you are hungry like all of the RE types .. if in fact this is your style, i would fire you immediately .. on a few occasions I have dealt with brokers with your attitude, and when i purchased a propoerty I sent them a verification of the sale and business lost
By Gfy,  Fri May 20 2011, 02:57
This must be a forum for brokers. What a bunch of horse $%^&. The implicit conflict of interest b/w a broker and their clients is something that deters educated buyers from listening to you clowns. Housing prices are going up? Employment is getting better? I laugh in your general direction, but what else could you expect from a bunch of brokers with GEDs...
By Teodor,  Fri May 20 2011, 06:48
HI I have a question. I am in the process of looking and in fact have made an offer. it is a townhome. recently i discovered that there is other people on top flor which I thought it would be me. This makes me a little bit nervous because of uncertainty of how neighbours are and th possibility of noise. The complex is fairly new not even 5 years old and the contruction quality looks good. I am not sure about the job the builder has done regarding noise insulation or whatever is the proper word. The fact is that I like the property and aside this it is the perfect one for my needs. I would appreciate any comment or insight on this matter.
By Pat and Steve Pribisko,  Fri May 20 2011, 09:20
Great post, as always!
By Elsa Owsley Dre#01349840,  Fri May 20 2011, 09:34
Great information Tara! Thank you for posting it. It's always nice to have additional information that re-enforces the message to the clients. They tend to pay closer attention. I will forward to some of my clients.

Thanks again!
By John Crowe,  Fri May 20 2011, 10:58
Need to work on the pain/pleasure principle with buyers - what happens when they don't get the house versus how they'll feel when they do. Motivation, so agents and buyers use time as efficiently as possible.
By Michael Mallory,  Fri May 20 2011, 12:23
Yes Gfy, the noise here is troubling. I have definitely shifted more to the big Z over the past couple months. T's celeb spotlight is a fun read, though.
By Darwin,  Fri May 20 2011, 14:34
for GFY -- good post, but failed to point out the pending rise in interests rates, which will further depress prices .. yes, unemployment and underemplyment not improving .. BROKER's continue to hype the market and the profess the market is in an slow upward trend .. it 's always Buy Now, go in high, do not insult the seller and the outright lies on high pending offers .. RE brokers, there are a few good ones, but most are snake oil carnies, or GED types with no clue

So we have several brokers posting here maintaing that they have to give their naiive buyers a reality check, lead them by the nose to the near asking price and make a quick commission. Another charade, is Keller Wilalms', practice of trying to convince a buyer to sign an exclusive buyers contract to to look for properties.
Fortunately at this point I am a Cash buyer and they are practicaly shinming my shoes. I'm in Soutbay Ca., and many brokers are still spoiled and dellusional. I have fired three of them in the last year, made one transaction using the seller's agent and I'm still looking for another good deal. I remain businesslike and civil with these brokers, but maintain control and they know it. I like the look on their faces at my first offer, which is usually about 30% under, unless the propoerty is priced right., which few are in the Southbay. Also, many brokers are sloppy on the sales contract and addendums, read them carefully and make all figures are correct and the seller has initialled and dated all provisoins. Recently in escrow on another property, and my broker was so damn hungry for a commission, he they tried to convince me to move full funds in before the paper work was in order. (short sale). I have caught them in many errors and omissions. Also, do not follow their intsructions on high EMD deposits, keep them as low as possible.
.
By Miriam Rosa,  Fri May 20 2011, 14:35
Great article, great information that I will share with my clients and customers.
By Darwin,  Sat May 21 2011, 19:11
Broker's only represent themselves and only care about their commissions. As evidence by this broker controlled blog, the mantra is to manipulate the client into going in near to full offer. With Brokers it is alway buy now, even though prices will continue in a downward trend, as evidenced by the tanking economy and rising interest rates. In todays LA Times, reports of starlting upswing in mortgage defaults. When has a broker ever told a buyer to hold off for even a few months due to a downward trend.
By Latrina Clark, CDPE, GRI, SFR,  Sat May 21 2011, 20:46
Great Article.
By Ocala Florida Real Estate,  Sat May 21 2011, 23:26
There is no question that a reasonable and educated buyer or seller will make transaction run smoother as long as their pride does not get in the way.
By Mikelle and Brian Smith,  Sun May 22 2011, 09:09
great information! thanks for posting and i am going to re-post!
By Lynnparkis,  Sun May 22 2011, 11:21
Buyers with any kind of a brain are not "led by the nose," and will have followed these suggestions as to visioning the kind of house they need for the kind of life they lead. All of these suggestions are good common sense for ANY real estate market. I have had realtors and lawyers tell me, "You don't have to read this one ..." and I just ignore them and take my time to look it over. I usually have a question or two, which sometimes are answered right away, and sometimes require corrections. But, come on, again, simple common sense. But if a client shows up without this kind of common sense ... then handing them this article might save heartache for both the client and realtor. My husband and I have purchased 10 homes in 7 geographical markets over the years, and got so good at envisioning our needs & financial abilities that each of us has bought a home without the other ever having seen it ... actually, two of the homes our whole family loved the best. Now we're guiding our "kids" through buying in an extremely strange market ... and Iv'e just sent the last two items above to them as a reminder. They've had the sense to work through the others themselves.
By Samuel Roberts,  Mon May 23 2011, 02:30
Thanks Tara. My wife and I are first time buyers and trying not to misstep. This is very useful!
By Darwin,  Mon May 23 2011, 06:46
to Ocala Fla RE - No, it is not pride getting in the way, it's adhering to business sense, here again a comment from an RE type on the model client leaving their business sense at the door.

When has a broker told any of you buyers that the market is in a downward trend and to wait it out for even a paltry few months. The Mantra is always buy now . Any brokers out there who have told their buyers that the market, particulalry in SoCal (Not the Inland Empiore) is still artificialy high. It is irrelevant the prices five years ago.

Brokers will manipulate and spin, all part of the used car sales mentality, particularly in OC/LA. Back in the day there were your mom and pop Brokers, part of the community, who were a different breed. Bottom line for Buyers is due dilligence at evey step and refuse to be manipulated by RE type s on the thought process. I have met a few sweetheart female agents in the SoBay who are honest, one at Remax Palos Verdes. Granted, I'm a cash buyer at this point and have quite a bit of experience under my belt. When interests rates soon tick up even one point, it's great for me, prices further down. L.A. is a hard town, probably more decent type of RE types elsewhere. If you are a first time buyer and need financing, perhaps the time to buy is now, but do not be pushed around or manipulated and be ready for a further decline in value of the house you buy and drive a hard bargain .. never pay close to asking price in this market.
By Bonnie Michal,  Mon May 23 2011, 12:07
Very practical information, especially for those buyers who have champagne tastes and beer budgets!
By Debra Mitchell-Adams,  Wed May 25 2011, 13:20
Great point about buyers not getting everything they want just because properties are affordable! Buyers are in a great position in this market but unless they build a custom house every detail is not going to line up with their expectations. The good news is that with all of the DIY shows on TV and info on the net you can get a bargain and turn your new house into the home you always dreamed of!
By TRACY TRUITT,  Wed May 25 2011, 22:22
The inventory is tightening in the Tampa Bay area and the media isn't keeping up with the reality of the Market, so buyer's are led in to a false sense of reality. Tara, your points are reality. I'd like to add that, we're entering into the summer months, so check the history on homes that have been sitting without the dehumidifier (A/C) on, because it only takes 3 days for mold to begin growing in a home in the hot and humid states. Make sure to do your homework and ask around to the neighbors about the property. When banks take over properities, they'll turn on the A/C but that doesn't mean it hadn't been sitting for a year before that without an A/C. You can request a mold inspection. The banks have never occupied the home so they DON'T have to provide a Seller's Real Property Disclosure. Mold remediation can be very very expensive to correct. I have more suggestions, but this is all I have time for now. Great Tips. Thank you Tara.
By Joseph Melanson,  Fri May 27 2011, 05:56
As Per Usual, You are right onTara, Summer Cape Cod water front deals are here, I just lowered one property $150,000.00 see http://www.1eldridge.com and another $200,000.00 see http://www.16jobsisland.com
By Jan Milstead,  Sun May 29 2011, 07:00
Opportunities for great deals are everywhere!
By Jane Grant,  Thu Jun 2 2011, 10:11
I love your number two that "Affordability Does Not Mean", that a buyer can get absolutely everything they want! It means making a list of items and listing them according to the most important aspects of what a buyer really wants in a home. That way buyers can be prepared to compromise with a couple of features!
By Julie Lauer,  Thu Jun 2 2011, 17:58
Lots of good info here Tara, thank you.
By Sun Realty - Graham Ginsberg,  Thu Nov 3 2011, 07:22
I would argue that the last few years have been a clearance sale on real estate inventory that exploded in the boom. See for yourself the foreclosures and short sales at http://www.naples-fl-real-estate.com/special-mls/ - We still have quite a lot of inventory
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