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JOHN F. WASIK

Bottom line for home buyers is price - and not much else matters

Email|Print| Text size + By John F. Wasik
November 21, 2007

Raffles, festive balloons, open houses, car giveaways. Will any of these incentives sell houses? Not at the moment.

You don't have to be particularly creative in a market glutted with homes. The painful reality is that homes are commodities. There are more than 4 million of them out there unsold and more coming on the market every day due to foreclosures. If you really need to sell, price is the one lever that will move a property.

Buyers are waiting for prices to fall even more. US existing-home prices are expected to drop almost 2 percent this year nationally, according to the National Association of Realtors, and are likely to fall further in areas saturated with homes for sale.

"Buyers just want price," says Mike Morgan, a Stuart, Fla.-based lawyer, real estate broker, and consultant who researches property markets for hedge funds and financial institutions. "Buyers have become educated, and they can easily cut through the fluffy incentives."

Morgan doesn't see any national rebound until at least 2010; maybe longer if builders keep constructing homes, and if banks continue dumping foreclosed properties on the market.

About 2 million properties may be foreclosed on in the coming year alone, resulting in an estimated loss of $223 billion in US home equity, particularly in California, New York, Florida, and Illinois, according to the Center for Responsible Lending, a North Carolina-based nonprofit.

Living near a foreclosed home may even trim as much as $5,000 from your home's market value, the center says. Some 44 million households will be affected, or about a third of all US housing units.

Selling has become a trying proposition in this dour market. Morgan has found that traditional deal-sweeteners such as paying broker bonuses and giving cash back on closing to the buyer aren't working as well as price cuts.

"On one $429,000 home a client wanted me to sell, the seller wanted to give the broker a $30,000 bonus on top of the commission. I told him it wouldn't help. I told him to just drop the price."

Because the market is so price-sensitive - buyers want bargains and sellers want to get prices they saw at the market's peak - you have to be flexible when advertising your home.

Morgan suggests you sell exclusively through Internet-based property sites and local Multiple Listing Services. He says newspaper ads, signs, and open houses don't work as well as the Internet.

When you price your property, you need to employ a strategy that can run counter to your emotional perception of the home's value - sometimes listing at a price far below what you hoped for.

Like any commodity, a home's price will follow supply-and-demand trends. In theory, custom homes in desirable neighborhoods should hold their value. Other properties should be discounted depending on how many similar homes or condos are on the market. Every market is different, though.

"If you don't get any calls on your listing price after a week, drop your price $10,000 or about 2 percent of your original asking price," Morgan says.

"The market will tell you what the price of your home is. You better be priced 10 percent under your competition - and then be prepared to think about accepting offers under that."

Selling in Miami? You are up against almost 80,000 listed condos and single-family homes, according to ZipRealty, an online brokerage service.

There are almost 30,000 units in Las Vegas; 42,000 in Boston; 35,000 in Seattle; and 110,000 in Los Angeles. Those inventories are through October.

Price-cutting is the order of business in most major markets. The service's price-reduction index, for example, shows that more than half the listings surveyed in Boston and Orange County and Sacramento, California, are discounted.

"People were telling me Boston and Seattle were OK," said Morgan, who recently visited both cities. "I've got news for those folks. They aren't OK."

John F. Wasik is a Bloomberg News columnist. He can be reached at jwasik@bloomberg.net.

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