So you know you definitely want to buy your own home. No matter the market conditions, interest rates, or status of A-Rod’s quest to hit Home Run #500, you have your reasons.
If that’s the case, how then to find a house at a price you’re willing to pay?
There is a glut of homes available for sale, but you can be pretty sure there is also a glut of Sellers out there with unrealistic expectations as to the price they’ll accept. And those expectations might very likely be out of line with your personal viewpoint on market value.
Back in Economics 101 we were taught about Supply and Demand, and how one affects the other, especially regards price.
I say, chuck the economic theory out the window. If you are ready to buy a home—for your own reasons—then it’s time to make your own economic theories and make ’em stick.
Here’s how, then, to find the Supply of houses you’d be willing to buy and thus meet your own personal Demand.
1. Determine a monthly payment you’re comfortable with.
When you are prequalified, your mortgage professional will calcluate for you the monthly payments on a maximum loan based on your income. If the maximum loan you’re qualified for has a payment beyond your comfort level, then ask your mortgage pro to “step it down.” You’ll have a payment you’re comfortable with and you’ll know, based on the new calculations, your maximum price.
2. Shop, shop, shop.
Create your own “gut-sense” of market value. You do this by looking at homes—in person—in your chosen neighborhood and learning the price points of different houses with different amenities and sizes. Look at a lot of houses.
When you are out shopping for a home on a Saturday and a Sunday, make offers. In New York you can make as many offers as you like; until you sign a contract of sale with your attorney, you’re not committed to anything. This is a good way to get at the essence of a Seller’s mindset: are they serious about selling, and what price do they really have in mind? At worst you’ll find out just how unrealistic a Seller is with price expectations. When you meet those kinds of Sellers, it’s time to move on, and you haven’t lost much time “falling in love” with that house!
While negotiating offers, determine the maximum price for any given house. You set that price by trusting your “gut sense” of market values because you’ve been out looking at lots and lots and lots of houses.
When you negotiate offers, first with your opening price and then up to your maximum price you create your own opportunities for “corrected prices” by seeking out the Homeowners who will sell to you at YOUR price.
3. Trust your “stuff.”
In baseball, when a pitcher is a bit flummoxed, the catcher or coach will come out to the mound and say, “Trust your stuff.”
When you’re shopping for your home, the “stuff” is all that homework you’ve done by looking at homes in your chosen market, developing an instinct as to true market price.
The second ingredient in your “stuff” is the knowledge of your personal “fundamentals.” These fundamentals exist with you, not out in the ether expressed on some internet site somewhere as an unfathomable variable in a real property valuation equation. YOU are the equation: your instinct, and your fundamentals. Taken together, it’s your “stuff,” and you should trust it!
The fundamentals are very simply:
-Do you want to rent or own?
-Can you locate a house at a price you’re comfortable with?
-Will you own that house for a long enough period of time to make sense considering how much money you’ll invest to make the purchase?
-Are there intangible benefits to owning that you want to realize, and that you absolutely cannot obtain by renting?
Those are the fundamentals.
A lot of people think there should be some baseline, some pre-defined “bottom” of the market and a condition of economic equilibrium at which point it makes sense to buy a home. They think there is some fixed equation like the Pythagorean Theorem when it comes to real estate market prices and timing.
Umm, no. There’s no such thing. Take it from someone with 18 years professional and 21 years personal experience with real estate.
Homeownership is what you make of it, quite literally. It starts with a dream, continues with your comfort level with the numbers, and finishes with your decision as to your own personal fundamentals.