Los Angeles Real Estate

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Many people ask, "When is the absolute best time to buy a home?"

My first response is to tell them "Whenever you can afford to start the buiding blocks of an investment that can give you equity." Although not a glamorous response to the original question, I usually get another question asked. "Do you think I should wait till the market goes down some more before buying?" My response is, "How much more were you thinking?"

To help simplify what happens in the real estate market, one should understand that there are several concepts that just don't change...and here they are...

1. Homes are sold at market value. Homes are bought at market value.

Many buyers read the tabloids of making offers for properties at 50% of asking price and "stealing" the home from owners. This is just not true. Homes are sold at market value and not at deeply discounted values. When someone walks into a Macy's department store and finds a discounted $20 pair of pants (at the 50% off rack)  with a retail price of $40, there's usually a notation that states "Discount is taken from original list price." Walking up to a register, most people wouldn't expect to go up to the counter and hand the clerk $10 for the $20 pair of pants expecting to get another 50% off.

Many buyers today that have made offers are starting to see that they have been "outbid" by others who offered more than their "lowball" offer. In reality, they were never "outbid", they were just out of the value range for the market and had no chance of getting the property at all.

This is true for sellers as well. Many homesellers feel that their home is worth more than market value because of X,Y,Z reasons. What they don't realize is that appraisals take precedence in setting valuations of properties. For example, let's say you are a homeowner that has a $500,000 market value property and you want to list the property for $575,000. Someone who lived in that house previous to you wants to buy it back at all costs and offer you full price...Great! Now let's see what happens. Their loan underwriter REQUIRES an appraisal and it is found to come in at...market value of $500,000. What we have is a seller that wants to sell, a buyer that wants to buy, but a lender that won't touch the deal and an escrow that won't close. The buyer doesn't have the $75,000 cash to fill the gap between asking price and selling price, so the deal dies unless the seller lowers their price to market value appraisal.

2. Market Value Is Constantly Changing

To keep abreast of values, one needs to have their realtor look into closed and pending transactions in the marketplace. Do not rely upon Zillow or all these other online aggregate real estate databases- they are outdated and even state that their valuations are up to 25% off. On a $500,000 property, this is a range from $375,000 to $625,000- not very accurate! Stay in touch with your realtor regarding market values. If they can't get valuations back to you within several days, get a new realtor. One more note for your protection- Not everyone who attempts to write real estate purchase contracts is licensed. Not all real estate salespersons are REALTORS. Don't get caught writing an offer with someody unless they are a LICENSED REALTOR who is a member of a LOCAL REAL ESTATE BOARD approved by the STATE'S DEPARTMENT OF REAL ESTATE. Protect yourself at all times by requesting to see their DRE license and stay away from unlicensed sales clerks.

3. You Can Negoiate Price, But You Can't Negotiate Interest Rates

This is the most important concept to the original question of "Should I wait to buy a home?" In a seller's market, it means the seller has the advantage in the negotiations. Sellers who don't want to sell give up this advantage when the market turns or houses are depreciating. In a buyer's market, buyers have the advantage in a transaction. Buyers lose this advantage when the market turns or houses are appreciating. It is a buyer's market right now at this very moment...and yet many buyers are still asking if they should buy in this market. On top of this, interest rates are poised to rise due to variables of inflation, fuel, and other worldwide market conditions. Unlike home prices, you will not be able to negotiate your interest rate.

Let's do a little math to help clarify the answer to this dilemma.

A. If you took a $500,000 financed home at 6.5% interest, your monthly payment on a 30 year loan would be around $3,160. If you waited to see if the maket will drop another 10% and yet the interest rates rose 1.5% during that same time, your monthly payment on $450,000 at 8% interest would be $3,301. The difference over the life of the loan would be equivelant to paying an extra $50,760!

By waiting for prices to drop versus negotiating a great price right now, you would have lost out on a significant amount towards your overall savings.

B. If you were to have negotiated strongly right now to get the purchase price down to $450,000 with the same low interest rate of 6.5%, your monthly payment would be around $2844. This equates to an overall savings of $164,520 over the life of the loan compared to if you had waited! You would also realize the tax breaks that come with home ownership!

The lesson learned...don't wait, negotiate!

Paul Aragon was voted one of the top two realtors in all of Los Angeles County by the 2008 Daily News Reader's Choice Awards.

He gladly gives free advice on real estate transactions, contracts, and negotiating the best deal. He can be reached a www.AragonEstates.com or at Paul@AragonEstates.com

$7,500 TAX CREDIT FOR

FIRST-TIME HOMEBUYERS:

With certain exceptions, a first-time homebuyer will receive a tax credit of 10% of the purchase price up to $7,500 maximum, for the tax year in which the buyer purchases a principal residence. The tax credit, however, must be repaid like an interest-free loan in equal installments over the next 15 years or in full if the homebuyer sells the property for a gain. A buyer qualifies as a "first-time" homebuyer as long as the buyer (and spouse if any) has not owned a principal residence in the U.S. for the last three years. The tax credit phases out for a taxpayer with a modified adjusted gross income over $75,000 (or $150,000 for joint returns). This tax credit is available for qualifying homes purchased from April 9, 2008 through June 30, 2009.

Statistics provided by the California Association of Realtors

http://www.car.org/